Strategic Choice of Risk: Evidence from Mutual Fund Families

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)


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
Issue number1
Publication statusPublished - 2017 Feb 1


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

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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