Impact of Managerial Commitment on Risk Taking with Dynamic Fund Flows
Ron Kaniel,
Stathis Tompaidis and
Ti Zhou ()
Additional contact information
Ti Zhou: Independent
Management Science, 2019, vol. 65, issue 7, 3174-3195
Abstract:
We present a model with dynamic investment flows, where fund managers have the ability to generate excess returns, and study how forcing them to commit part or all of their personal wealth to the fund they manage affects fund risk taking. We contrast the behavior of a manager who may invest her personal wealth in a private account to a manager who is either forced to commit her wealth to the fund she manages or not allowed to hold risky assets held by the fund privately. We show that a fund managed by a manager with higher ability does not necessarily achieve higher expected returns but achieves lower idiosyncratic volatility. For a manager with constant ability, restrictions placed on her personal account do not influence her choices in the fund, while for a manager whose ability varies stochastically, they result in higher expected returns and idiosyncratic volatilities. Fund strategies can be nonmonotone both in the manager’s commitment level and the ratio of manager to investor wealth. Our results are robust to incomplete information and to competing managers with correlated ability.
Keywords: managerial commitment; asset management; dynamic flows; asset allocation; learning (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)
Downloads: (external link)
https://doi.org/10.1287/mnsc.2017.2946 (application/pdf)
Related works:
Working Paper: Impact of Managerial Commitment on Risk Taking with Dynamic Fund Flows (2017) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:65:y:2019:i:7:p:3174-3195
Access Statistics for this article
More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().