On the Demand for High-Beta Stocks: Evidence from Mutual Funds
Susan Kerr Christoffersen
University of Toronto - Rotman School of Management; Copenhagen Business School
University of Toronto - Rotman School of Management
January 18, 2016
Prior studies have documented that pension plan sponsors rigorously monitor a fund’s performance relative to a benchmark. We use a first-difference approach to show that in an effort to beat benchmarks, fund managers controlling large pension assets tend to increase their exposure to high-beta stocks while at the same time aiming to maintain tracking error around the benchmark. The findings support theoretical conjectures that benchmarking leads managers to tilt their portfolio towards high-beta, negative-alpha stocks and away from low-beta, positive-alpha stocks, reinforcing observed pricing anomalies. Managerial risk-taking responses to benchmarking pressures can complicate financial planning for investors.
Number of Pages in PDF File: 50
Keywords: Retirement saving, agency costs, risk-taking, mutual funds, beta-return relation, volatility anomaly
JEL Classification: G11, G23
Date posted: March 15, 2012 ; Last revised: February 20, 2016
© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.
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