Do Shocks to Personal Wealth Affect Risk Taking in Delegated Portfolios?
58 Pages Posted: 22 Oct 2014 Last revised: 18 Nov 2017
Date Written: November 10, 2017
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: Suggested Citation