29 Pages Posted: 21 Nov 2007
Date Written: November 20, 2007
We analyze the impact of prior performance on the risk-taking behavior of mutual fund managers. We contribute to the existing literature by using different measures of risks, a larger data set, and an econometric approach capturing non-linear effects and assigning exact probabilities to the mutual fund managers' adjustment of behavior. We find that prior performance in the first half of the year has, in general, a positive impact on the choice of the risk level in the second half of the year. Successful fund managers increase the volatility, the beta, and assign a higher proportion of their portfolio to value stocks, small firms, and momentum stocks in comparison to unsuccessful fund managers. Unsuccessful fund manager increase, on average, only the tracking error.
Keywords: mutual funds, risk taking
JEL Classification: G21
Suggested Citation: Suggested Citation
Ammann, Manuel and Verhofen, Michael, The Impact of Prior Performance on the Risk-Taking of Mutual Fund Managers (November 20, 2007). Available at SSRN: https://ssrn.com/abstract=1031463 or http://dx.doi.org/10.2139/ssrn.1031463