Survival, Tournament, and Asset Allocation Strategy in the Mutual Fund Industry

25 Pages Posted: 17 Nov 1999

See all articles by Kevin C.H. Chiang

Kevin C.H. Chiang

University of Alaska Fairbanks - School of Management (SOM); Louisiana State University, Baton Rouge - Department of Finance

Date Written: April 1999

Abstract

I present a model that characterizes the impact of relative performance compensation and replacement schemes on mutual fund managers' asset allocation decisions. The model provides explanations of the following questions: (1) why does fund risk manipulation concentrate in the latter part of an annual assessment period; (2) why do departing fund managers, on average, exhibit higher portfolio turnover rates and higher expenses relative to non-replaced fund managers; and (3) why do mutual funds have a significant preference toward stocks with low transaction costs and an aversion to stocks with low idiosyncratic volatility.

JEL Classification: G0, G1, G2

Suggested Citation

Chiang, Kevin C.H., Survival, Tournament, and Asset Allocation Strategy in the Mutual Fund Industry (April 1999). Available at SSRN: https://ssrn.com/abstract=190349 or http://dx.doi.org/10.2139/ssrn.190349

Kevin C.H. Chiang (Contact Author)

University of Alaska Fairbanks - School of Management (SOM) ( email )

P.O. Box 756080
208C Bunnell Building
Fairbanks, AK 99775-0500
United States
907-474-7049 (Phone)
907-474-5219 (Fax)

Louisiana State University, Baton Rouge - Department of Finance ( email )

E.J. Ourso College of Business Administration
Baton Rouge, LA 70803
United States
225-753-4978 (Phone)
225-388-6366 (Fax)

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