Mutual Fund Tournaments and Fund Active Share
43 Pages Posted: 27 Nov 2017 Last revised: 17 Jun 2020
Date Written: June 11, 2020
We study the impact of the tournament-like competition in the mutual fund industry by examining the Active Share choices of funds. Funds with relatively poor performance by the end of the third quarter in a calendar year tend to increase their Active Share during the last quarter. The increase in the trailing funds' Active Share is accompanied by an increase in the funds' downside risk exposure. The evidence suggests that the strategic shifts in Active Share we document are not information/skill motivated.
Keywords: Mutual Fund Tournaments, Active Share, Downside Risk, Implicit Incentives, Performance Chasing
Suggested Citation: Suggested Citation