Portfolio Manager Ownership and Mutual Fund Risk Taking

Linlin Ma () and Yuehua Tang ()
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Linlin Ma: Peking University, HSBC Business School, Shenzhen 518055, China
Yuehua Tang: University of Florida, Warrington College of Business, Gainesville, Florida 32611

Management Science, 2019, vol. 65, issue 12, 5518-5534

Abstract: This paper studies the effect of portfolio manager ownership (i.e., “skin in the game”) on mutual fund risk taking. Using holdings-based risk change measures that capture managers’ ex ante risk choices, we find that portfolio manager ownership reduces both intrayear and across-year risk-taking activities. The relationship between ownership and risk reduction is particularly strong among managers with high agency issue–induced risk-taking incentives—for example, managers who face a more convex flow-performance relationship, have poor past performance, or are not compensated based on long-term fund performance. Funds with greater managerial ownership are also associated with lower levels of total risk and downside risk. Overall, portfolio manager ownership serves as an incentive alignment mechanism and has important implications for mutual fund investors.

Keywords: mutual funds; portfolio manager ownership; agency issues; risk taking; managerial incentives (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (23)

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