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A Tournament Model of Fund Management
Author(s) -
Acker Daniella,
Duck Nigel W.
Publication year - 2006
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2006.00648.x
Subject(s) - tournament , ranking (information retrieval) , investment management , portfolio , benchmark (surveying) , project portfolio management , business , passive management , target date fund , economics , actuarial science , econometrics , financial economics , fund of funds , finance , open end fund , computer science , institutional investor , management , project management , artificial intelligence , mathematics , geodesy , combinatorics , market liquidity , geography , corporate governance
We develop a tournament model of portfolio management and test it on UK investment trusts. Our model extends the literature by analysing middle‐ranking funds who aim to beat a benchmark; spanning two periods; focusing on ‘extreme’ portfolios; and using a signal‐extraction framework. We predict that ‘losing’ managers will adopt extreme portfolios, and increasingly so, the further behind the fund is and the nearer the ranking date. Losing managers will choose high/low market exposure depending both on anticipated market movements and on whether they have sufficient assets to take advantage of a rising market. Our empirical tests support these predictions.