Do Shocks to Personal Wealth Affect Risk Taking in Delegated Portfolios?

58 Pages Posted: 22 Oct 2014 Last revised: 18 Nov 2017

See all articles by Veronika Krepely Pool

Veronika Krepely Pool

Vanderbilt University - Finance

Noah Stoffman

Indiana University - Kelley School of Business - Department of Finance

Scott E. Yonker

Cornell University - SC Johnson College of Business

Hanjiang Zhang

Washington State University - Carson College of Business

Date Written: November 10, 2017

Abstract

Using exogenous wealth shocks stemming from the collapse of the housing market, we show that managers who experience substantial losses in their home values subsequently reduce the risk in their delegated funds. The decline in fund risk comes through reductions in idiosyncratic risk and tracking error, suggesting that the behavior is likely driven by career concerns. Our paper provides evidence that the idiosyncratic personal preferences of mutual fund managers affect their professional decisions and offers a methodology for testing for manager effects that is not subject to the selection critique of Fee, Hadlock, and Pierce (2013).

Keywords: Manager style, risk taking, wealth, preferences, mutual funds

JEL Classification: G30, G20

Suggested Citation

Pool, Veronika Krepely and Stoffman, Noah and Yonker, Scott E. and Zhang, Hanjiang, Do Shocks to Personal Wealth Affect Risk Taking in Delegated Portfolios? (November 10, 2017). Available at SSRN: https://ssrn.com/abstract=2512855 or http://dx.doi.org/10.2139/ssrn.2512855

Veronika Krepely Pool

Vanderbilt University - Finance ( email )

United States
615-343-0277 (Phone)

Noah Stoffman

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
(812) 856-5664 (Phone)

HOME PAGE: http://kelley.iu.edu/nstoffma/

Scott E. Yonker (Contact Author)

Cornell University - SC Johnson College of Business ( email )

201J Warren Hall
Ithaca, NY 14853
United States
14853 (Fax)

Hanjiang Zhang

Washington State University - Carson College of Business ( email )

Wilson Rd.
College of Business
Pullman, WA 99164
United States

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