Effort and Risk-Taking in Mutual Fund Competition

20 Pages Posted: 12 May 2011

See all articles by Duc Ngo

Duc Ngo

University of Orleans

Huyen Nguyen-Thi-Thanh

Université d'Orléans

Date Written: May 1, 2011

Abstract

The paper analyses effort and risk-taking behavior of fund managers in a tournament framework where they can choose not only the risk level but can also adjust their effort to achieve the highest relative performance and win the competition. The results show that when effort is costly, the interim winning fund exerts higher effort and chooses a lower risk than the interim loosing fund as documented in standard literature. However, when effort is less costly, the winning fund imitates and chooses the same risk level as the loosing fund like in Taylor (2003). Empirical verifications conducted on a sample of US domestic growth-oriented mutual funds over the period 1/1999-12/2008 provide evidences supporting our theoretical predictions.

Suggested Citation

Ngo, Duc and Nguyen-Thi-Thanh, Huyen, Effort and Risk-Taking in Mutual Fund Competition (May 1, 2011). International Conference of the French Finance Association (AFFI), May 11-13, 2011. Available at SSRN: https://ssrn.com/abstract=1836866 or http://dx.doi.org/10.2139/ssrn.1836866

Duc Ngo (Contact Author)

University of Orleans ( email )

Université d'Orléans,
Rue de Blois, B.P. 6739, 45
France

Huyen Nguyen-Thi-Thanh

Université d'Orléans ( email )

Rue de Blois
B.P. 6739
45067 Orleans Cedex 2, Orleans cedex 2 45067
France

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