European Business Schools Librarian's Group

Les Cahiers de Recherche,
HEC Paris

No 925: Time-varying incentives in the mutual fund industry

Jacque Olivier () and Anthony Tay ()

Abstract: In this paper, the authors provide evidence that the convexity of the flow-performance relationship in the mutual fund industry varies with economic activity. This effect is strongly economically significant: a +/-1% change in GDP growth doubles/eliminates the degree of convexity of the flow-performance relationship. The effect of economic activity dominates that of market conditions and can be rationalized by the behavior of investors who smooth consumption while displaying a disposition effect. Our finding has two major implications: first, it rationalizes the risk-shifting behavior of mutual fund managers and provides support for the seminal flow-based tournament hypothesis over the more recent "career concern" explanation. Second, it explains why mutual fund performance varies with the business cycle.

Keywords: Mutual funds; Incentives; Economic activity; Risk-shifting; Performance

JEL-codes: G11; G23

42 pages, November 1, 2009

Full text files

8186f90427eb0e9823890dde118e6d6e.pdf PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Antoine Haldemann ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-02-22 16:52:59.