Abstract

http://ssrn.com/abstract=2022266
 


 



On the Demand for High-Beta Stocks: Evidence from Mutual Funds


Susan Kerr Christoffersen


University of Toronto - Rotman School of Management; Copenhagen Business School

Mikhail Simutin


University of Toronto - Rotman School of Management

February 22, 2015


Abstract:     
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 reduce fees and increase their exposure to high-beta stocks. Managers increase beta without affecting tracking error by strategically substituting low-beta stocks for high-beta stocks. The findings support theoretical conjectures that benchmarking leads managers to tilt their portfolios 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 complicate financial planning for investors.

Number of Pages in PDF File: 60

Keywords: Retirement saving, agency costs, risk-taking, mutual funds, beta-return relation, volatility anomaly

JEL Classification: G11, G23


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Date posted: March 15, 2012 ; Last revised: February 27, 2015

Suggested Citation

Christoffersen, Susan Kerr and Simutin, Mikhail, On the Demand for High-Beta Stocks: Evidence from Mutual Funds (February 22, 2015). Available at SSRN: http://ssrn.com/abstract=2022266 or http://dx.doi.org/10.2139/ssrn.2022266

Contact Information

Susan E. Christoffersen
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416 946 5647 (Phone)
416 971 3048 (Fax)
HOME PAGE: http://www.rotman.utoronto.ca/schristoffersen

Copenhagen Business School
Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark
Mikhail Simutin (Contact Author)
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
HOME PAGE: http://www.rotman.utoronto.ca/simutin
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