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Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry
Author(s) -
BROWN KEITH C.,
HARLOW W. V.,
STARKS LAURA T.
Publication year - 1996
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1996.tb05203.x
Subject(s) - manager of managers fund , mutual fund , target date fund , volatility (finance) , incentive , fund administration , open end fund , investment management , investment fund , business , fund of funds , economics , monetary economics , closed end fund , finance , microeconomics , institutional investor , corporate governance
We test the hypothesis that when their compensation is linked to relative performance, managers of investment portfolios likely to end up as “losers” will manipulate fund risk differently than those managing portfolios likely to be “winners.” An empirical investigation of the performance of 334 growth‐oriented mutual funds during 1976 to 1991 demonstrates that mid‐year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid‐year winners. Furthermore, we show that this effect became stronger as industry growth and investor awareness of fund performance increased over time.