Strategic Choice of Risk: Evidence from Mutual Fund Families

Chia Ying Chan, Christine W. Lai, Liang Chung Lee

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This study examines family-level risk taking behavior from the perspective of the strategic choice of risk. We examine whether family-level risk taking tendency is affected by a fund family’s flow tournament position in the mutual fund industry. We use family-level excess fund flow, which is defined by the gap between the actual net flows and expected net flows of a fund family, to proxy for its interim fund-flow tournament position. A fund family is an interim winner (loser) if it experiences better (worse) than expected net flows. Two measures are used to proxy for risk taking strategy: (1) Active Share; and (2) the Standard Deviation of Fund Holdings at Family Level. Overall, we conclude that fund families classified as interim losers and top interim winners in a net flow tournament position exhibit risk taking propensities. Bottom dwellers increase risk for survival, whereas leaders increase risk to retain their leadership.

Original languageEnglish
Pages (from-to)125-163
Number of pages39
JournalJournal of Financial Services Research
Volume51
Issue number1
DOIs
Publication statusPublished - 2017 Feb 1

Fingerprint

Mutual funds
Strategic choice
Risk taking
Tournament
Fund flows
Industry
Standard deviation
Risk-taking behavior
Propensity
Fundholding

Keywords

  • Fund-flow tournament
  • Mutual fund family
  • Risk taking
  • Strategic choice of risk

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Strategic Choice of Risk : Evidence from Mutual Fund Families. / Chan, Chia Ying; Lai, Christine W.; Lee, Liang Chung.

In: Journal of Financial Services Research, Vol. 51, No. 1, 01.02.2017, p. 125-163.

Research output: Contribution to journalArticle

Chan, Chia Ying ; Lai, Christine W. ; Lee, Liang Chung. / Strategic Choice of Risk : Evidence from Mutual Fund Families. In: Journal of Financial Services Research. 2017 ; Vol. 51, No. 1. pp. 125-163.
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