The Cross-section of Managerial Ability, Incentives, and Risk Preferences

88 Pages Posted: 23 Mar 2009 Last revised: 17 Oct 2012

See all articles by Ralph S. J. Koijen

Ralph S. J. Koijen

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: October 16, 2012

Abstract

I estimate a dynamic investment model for mutual managers to study the cross-sectional distribution of ability, incentives, and risk preferences. The manager's compensation depends on the size of the fund, which fluctuates due to fund returns and due to fund flows that respond to the fund's relative performance. The model provides an economic interpretation of time-varying coefficients in performance regressions in terms of the structural parameters. I document that the estimates of fund alphas are precise and virtually unbiased. I find substantial heterogeneity in ability, risk preferences, and pay-for-performance sensitivities that relates to observable fund characteristics.

Keywords: mutual fund performance measurement, structural estimation

Suggested Citation

Koijen, Ralph S. J., The Cross-section of Managerial Ability, Incentives, and Risk Preferences (October 16, 2012). EFA 2008 Athens Meetings Paper, AFA 2009 San Francisco Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1101652 or http://dx.doi.org/10.2139/ssrn.1101652

Ralph S. J. Koijen (Contact Author)

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/ralph.koijen/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

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