Relative Performance, Risk and Entry in the Mutual Fund Industry

Lóránth, Gyöngyi and Emanuela Sciubba

No 3504, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper constitutes a first attempt to analyse the impact of the emergence of new funds on portfolio decisions of mutual fund managers who are evaluated on the basis of relative performance. Recent theoretical literature has pointed to the inefficiencies in portfolio selection caused by relative performance evaluation of fund managers. We find that the ongoing process of creation of new funds, by posing an entry threat to the incumbent fund managers, greatly alleviates these inefficiencies. Hence the transitory market structure that characterizes the mutual fund industry could explain why relative performance evaluation is widely in use.

Keywords: Relative performance evaluation; Fund management industry; Ranking objectives; Family of funds (search for similar items in EconPapers)
JEL-codes: G11 G24 L10 (search for similar items in EconPapers)
Date: 2002-08
New Economics Papers: this item is included in nep-cfn
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Related works:
Journal Article: Relative Performance, Risk and Entry in the Mutual Fund Industry (2006)
Working Paper: Relative Performance, Risk and Entry in the Mutual Fund Industry (2006)
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