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

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

Ralph S. J. Koijen

New York University (NYU) - Department of Finance; 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)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

HOME PAGE: http://www.koijen.net

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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