Mutual Funds and Bubbles: The Surprising Role of Contractual Incentives

Nishant Dass, Massimo Massa and Rajdeep Patgiri

The Review of Financial Studies, 2008, vol. 21, issue 1, 51-99

Abstract: This article studies one of the potential causes of the financial market bubble of the late 1990s: the herding behavior of mutual funds. We show that the incentives contained in the mutual funds' advisory contracts induce managers to overcome their tendency to herd. We argue that investing in bubble stocks amounts to herding and contracts with high incentives induce managers to diverge from the herd, thus reducing their holding of bubble stocks. The differential exposure to bubble stocks significantly impacted the funds' performance both in the period prior to March 2000, as well as afterwards. The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies., Oxford University Press.

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (59)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhm033 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
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:oup:rfinst:v:21:y:2008:i:1:p:51-99

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().