On the Demand for High-Beta Stocks: Evidence from Mutual Funds

40 Pages Posted: 15 Mar 2012 Last revised: 24 Feb 2017

Susan Kerr Christoffersen

University of Toronto - Rotman School of Management; Copenhagen Business School

Mikhail Simutin

University of Toronto - Rotman School of Management

Date Written: January 18, 2016

Abstract

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

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

Susan E. Christoffersen

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416 946 5647 (Phone)
416 971 3048 (Fax)

HOME PAGE: http://www.rotman.utoronto.ca/schristoffersen

Copenhagen Business School

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Mikhail Simutin (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada

HOME PAGE: http://www.rotman.utoronto.ca/simutin

Paper statistics

Downloads
484
Rank
46,006
Abstract Views
2,128