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Risk shifting consequences depending on manager characteristics

Laura Andreu, José Luis Sarto and Miguel Serrano

International Review of Economics & Finance, 2019, vol. 62, issue C, 131-152

Abstract: This paper investigates the performance consequences of the risk shifting behavior shown by domestic equity mutual funds through the analysis of monthly portfolio holdings. The objective of this paper is to assess the implications of risk shifting for mutual fund investors. Specifically, we study the performance consequences of different mechanisms of risk shifting, such as the change in the composition between equity and cash holdings and the change of the systematic or idiosyncratic risk within the equity positions. We find that funds that increase their risk level obtain significantly better performance than funds with stable or reduced risk levels. This finding is robust when controlling for fund characteristics such as past performance and fund size. Additionally, we examine whether the performance consequences of risk shifting depends on fund manager characteristics and find that manager gender, education and level of specialization are revealed as important variables to differentiate the performance consequences of risk shifting.

Keywords: Fund characteristics; Manager characteristics; Monthly portfolio holdings; Performance consequences; Risk-shifting (search for similar items in EconPapers)
JEL-codes: G23 G11 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.iref.2019.03.009

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