Portfolio Manager Ownership and Mutual Fund Risk Taking

Management Science, Forthcoming

AFA 2013 San Diego Meetings Paper

62 Pages Posted: 18 Mar 2012 Last revised: 21 Jun 2018

See all articles by Linlin Ma

Linlin Ma

Peking University HSBC Business School

Yuehua Tang

University of Florida - Department of Finance

Date Written: April 15, 2018

Abstract

This paper studies the effect of portfolio manager ownership (i.e., skin in the game) on mutual fund risk taking. Using holdings-based risk change measures that capture managers’ ex ante risk choices, we find that portfolio manager ownership reduces both intra-year and across-year risk-taking activities. The relation between ownership and risk reduction is particularly strong among managers with high agency-issue-induced risk-taking incentives, e.g., managers who face a more convex flow-performance relation, have poor past performance, or are not compensated based on long-term fund performance. Funds with greater managerial ownership are also associated with lower levels of total risk and downside risk. Overall, portfolio manager ownership serves as an incentive alignment mechanism and has important implications for mutual fund investors.

Keywords: Mutual funds, portfolio manager ownership, agency issues, risk taking, managerial incentives

JEL Classification: G23, G29, G32

Suggested Citation

Ma, Linlin and Tang, Yuehua, Portfolio Manager Ownership and Mutual Fund Risk Taking (April 15, 2018). Management Science, Forthcoming; AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2024119 or http://dx.doi.org/10.2139/ssrn.2024119

Linlin Ma

Peking University HSBC Business School ( email )

Yuehua Tang (Contact Author)

University of Florida - Department of Finance ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/yuehuatang

Register to save articles to
your library

Register

Paper statistics

Downloads
644
Abstract Views
3,621
rank
40,223
PlumX Metrics