40 Pages Posted: 15 Mar 2012 Last revised: 24 Feb 2017
Date Written: January 18, 2016
Prior studies have documented that pension plan sponsors rigorously monitor a fund’s performance relative to a benchmark. We use a first-difference approach to show that in an effort to beat benchmarks, fund managers controlling large pension assets tend to increase their exposure to high-beta stocks while at the same time aiming to maintain tracking error around the benchmark. The findings support theoretical conjectures that benchmarking leads managers to tilt their portfolio towards high-beta, negative-alpha stocks and away from low-beta, positive-alpha stocks, reinforcing observed pricing anomalies. Managerial risk-taking responses to benchmarking pressures can complicate financial planning for investors.
Keywords: Retirement saving, agency costs, risk-taking, mutual funds, beta-return relation, volatility anomaly
JEL Classification: G11, G23
Suggested Citation: Suggested Citation
Christoffersen, Susan Kerr and Simutin, Mikhail, On the Demand for High-Beta Stocks: Evidence from Mutual Funds (January 18, 2016). Available at SSRN: https://ssrn.com/abstract=2022266 or http://dx.doi.org/10.2139/ssrn.2022266