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Alexei Goriaev

New Economic School, Finance, Faculty Member

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David Pierre Leibovitz

Carleton University

Kansas State University

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UCL Institute of Education

Armando Marques-Guedes

UNL - New University of Lisbon

Kathryn LaFevers Evans, Three Eagles

Pacifica Graduate Institute

University of Hertfordshire

Victor Ricciardi

Ursinus College

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Universidad Complutense de Madrid

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Papers by Alexei Goriaev

Beyond Transition 17 (1)

Closing of Mutual Funds in Russia

HSE Economic Journal, 2016

Recent global financial crisis had significant impact on mutual fund industry both globally and i... more Recent global financial crisis had significant impact on mutual fund industry both globally and in Russia. Total Net Assets and number of funds under management shrank dramatically. In this paper we analyze delisting of mutual funds in Russia. In contrast to existing studies we employ a matching procedure in order to compare liquidated and survived funds. For each liquidated fund we find all similar survived funds by investment style and Total Net Assets. Liquidated funds are smaller, younger, have poor performance records, and suffer from large asset redemption. Most of the mutual funds in Russia are liquidated along with fund management company. We show that Russian management companies are young, suffer from capital shortage and from lack of economies of scale, which sharply increase a probability for them to be liquidated. Our results stress the need for Russian fund management companies to have sufficient capital in order to be able to survive short-term negative shocks. This may help to increase confidence in Russian mutual fund industry and, consequently, develop Russian financial market. During the period of present economic and financial turmoil Russian management companies experience difficulties, which lead to consolidation of the whole industry. Management company liquidations have negative externalities on mutual funds’ investors. Therefore we suggest mergers of unviable management company with healthy ones as the best way to consolidate the industry.

Should Emerging Market Investors Diversify Abroad Despite Superior Domestic Performance?

Social Science Research Network, 2005

are grateful to Sergei Guriev and Galina Ovtcharova for fruitful discussions. We also thank the p... more

The Relative Impact of Different Classification Schemes on Mutual Fund Flows

The US mutual fund industry experienced tremendous growth during the past two decades. In Novembe... more The US mutual fund industry experienced tremendous growth during the past two decades. In November 2001 there were 8,282 mutual funds controlling over US$6.9 trillion dollars in assets, which by far exceeds 665 funds with US$241.4 billion in assets in 1981 (Investment Company Institute, 2001). With so many funds around, investors face a difficult task of selecting a fund with the desired risk and performance profile. Mutual fund categories composed of funds with a similar investment approach help investors to simplify their decision problem. Investors often first choose the category that suits their preferences and then select the best fund in that category, based on fund performance and/or other fund characteristics (see, for example, Kim, Shukla and Tomas, 2000). This investor behavior results in a specific structure of mutual fund flows, which depends on a fund’s relative performance within its category. As a consequence, the classification system also influences the incentives of fund managers, whose compensation is usually based on a percentage of fund assets (see, for example, Khorana, 1996). Given that top performers in a category attract most of the inflows, fund managers have an incentive to maximize their performance relative to other funds in the same category. This may not be consistent with their shareholders’ interests.

Risks of investing in the Russian stock market: Lessons of the first decade

Emerging Markets Review, Dec 1, 2006

The modern history of the Russian stock market has mirrored ups and downs of the country's transi... more The modern history of the Russian stock market has mirrored ups and downs of the country's transition as well as swings in investor perceptions. In this paper, we describe the evolution of the Russian stock market over its first decade, with particular attention to the risk factors driving stock returns. First, we analyze the development of the institutional infrastructure and dynamics of the market's size and liquidity measured by the number of listed and traded stocks, depositary receipts and IPOs as well as trading volume in the local stock exchanges and abroad. Then, we examine major political and economic events, which influenced the investor perceptions of the country risk and were reflected in stock prices. Finally, we carry out quantitative analysis of risk factors explaining considerable time and cross-sectional variation in Russian stock returns. We document a significant role of corporate governance, political risk, and macroeconomic risk factors, such as global equity markets performance, oil prices, and exchange rates, whose relative importance varied a lot over time.

Yet another look at mutual fund tournaments

Journal of Empirical Finance, 2005

Is Political Risk Company-Specific? The Market Side of the Yukos Affair

RePEc: Research Papers in Economics, May 1, 2005

The Yukos affair, a state-led assault on controlling shareholders of a private Russian oil compan... more The Yukos affair, a state-led assault on controlling shareholders of a private Russian oil company, once again demonstrated the shaky nature of property rights in emerging markets. Toughening of the state policy towards business implied higher company-specific political risk and was immediately reflected in lower stock prices. Among private companies, the risk appeared to be especially high for non-transparent companies, oil companies, and companies privatized via ill-famous loans-for-shares auctions. Surprisingly, transparent government-owned companies were also very sensitive to Yukos events. This evidence suggests that investors seriously consider risks of selective government intervention, backdated taxes and privatization review.

Performance information dissemination in the mutual fund industry

RePEc: Research Papers in Economics, 2008

General rights Copyright and moral rights for the publications made accessible in the public port... more General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights.-Users may download and print one copy of any publication from the public portal for the purpose of private study or research-You may not further distribute the material or use it for any profit-making activity or commercial gain-You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright, please contact us providing details, and we will remove access to the work immediately and investigate your claim.

On the behavior of mutual fund investors and managers

Other publications TiSEM, 2002

whose financial and organizational support is gratefully acknowledged. First of all, I would like... more whose financial and organizational support is gratefully acknowledged. First of all, I would like to thank my supervisors without whom this work would have never been accomplished. Theo Nijman introduced me to the topic of mutual funds and gave me indispensable insights in finance as well as general advice. Bas Werker was always available for inspiring discussions, in which he time after time corrected my imprecise statistical statements. Fred Palomino shared a lot of new ideas with me, encouraging me to look at things from a different perspective. I greatly appreciate their kindness and patience answering all my (silly) questions and reviewing numerous versions of the chapters in this thesis. Special thanks go to other members of the committee, Susan Christoffersen, Jenke ter Horst, Frank de Jong, and Chris Veld, for the time and effort they spent on my work. Furthermore, I am indebted to all my colleagues and friends in Tilburg-impossible to mention them all-for creating a relaxed and stimulating atmosphere both during and outside working hours. Finally, I am grateful to my family-parents and older brothers, who gave me support in whatever direction I chose to pursue. May the spirit be with us.

On the Empirical Evidence of Mutual Fund Strategic Risk Taking

RePEc: Research Papers in Economics, 2001

We reexamine empirical evidence on strategic risk-taking behavior by mutual fund managers. Severa... more We reexamine empirical evidence on strategic risk-taking behavior by mutual fund managers. Several studies suggest that fund performance in the …rst semester of a year in ‡uences risk-taking in the second semester. However, we show that previous empirical studies implicitly assume that idiosyncratic fund returns (in a factor model) are uncorrelated across funds. We present generalized methodologies (based on both contingency tables and regression analysis) that accommodate the case of a general error structure. We show that the correlation between idiosyncratic fund returns is essential to the analysis and, when it is taken into account, the empirical evidence of strategic risk taking by fund managers disappears.

The Dynamics of the Impact of Past Performance on Mutual Fund Flows

RePEc: Research Papers in Economics, 2002

This study reconsiders the determinants of°ows into US growth funds, focusing in particular on th... more This study reconsiders the determinants of°ows into US growth funds, focusing in particular on the dynamics of the impact of past performance on°ows. We model the°o w-performance relationship at the monthly frequency, allowing for dependence of the sensitivity of°ows to past performance on size and age of the fund. The dynamics of the impact of past performance is modelled using polynomial lag structures. Performance from 6 to 8 months ago seems to have the strongest impact on net°ows to US growth funds. We observe that performance during the most recent quarter is less important than performance during the remaining three quarters of the¯rst year, suggesting that some investors react to fund performance with a certain lag. Speci¯cations based on average past performance at annual or quarterly frequency are strongly rejected. The¯rst three years of past performance history account for about 90 percent of the total impact of past performance on°ows. The well-documented convexity of the°ow-performance relationship appears robust to allowing for dependence of this relationship on size and age of the fund. The return on systematic risk factors has a small additional impact on top of the impact of risk-adjusted returns.

Transparency, Institutions and Firm Value: Evidence from the Global Financial Crisis

Social Science Research Network, 2010

Abstract We analyze the effect of corporate governance at the firm and country level on decline i... more

Project proposal Evaluating performance and strategy of mutual funds

Mutual Fund Tournament : Risk Taking Incentives Induced by Ranking Objectives

RePEc: Research Papers in Economics, May 1, 2001

There is now extensive empirical evidence showing that fund managers have relative performance ob... more There is now extensive empirical evidence showing that fund managers have relative performance objectives and adapt their investment strategy in the last part of the calendar year to their performance in the early part of the year. However, emphasis was put on returns in excess of some exogenous benchmark return. In this paper, we investigate whether fund managers have ranking objectives (as in a tournament). First, in a two-period model, we analyze the game played by two risk-neutral fund managers with ranking objectives. We derive conditions on the set of possible strategies under which the aggregate amount of risk undertaken in the late period is larger than in the¯rst period. In the second part of the paper, we provide evidence that (i) funds have risk incentives generated by ranking objectives, (ii) risk induced by ranking objectives is mainly idiosyncratic, and (iii) risk incentives generated by ranking objectives are stronger for funds ranked in the top decile after the¯rst part of the year.

New Economic School

Mutual funds' performance rankings are widely publicized in the media and have a strong impact on... more Mutual funds' performance rankings are widely publicized in the media and have a strong impact on fund flows (see, e.g., Sirri and Tufano, 1998). In this paper, we study risk taking incentives of mutual fund managers who have ranking objectives (as in a tournament). First, in a two-period model, we analyze the game played by two risk-neutral fund managers with ranking objectives. We show that in the first period, managers choose the same risk level but do not act in the interest of investors. In the second period the interim loser (i) takes more risk than the interim winner and (ii) the level of risk undertaken by the interim loser is increasing with the difference in interim performances. Second, we empirically test some predictions of the model in a sample of diversified US equity funds in 1976-1999, using a more powerful methodology than in previous studies and accounting for cross-correlation in fund returns. We find evidence that funds' choice of systematic risk in the second part of the year is negatively related to their interim performance, which is consistent with the model.

From Red to Grey: a Third Transition

From the Editor: Dear Reader, Several years ago Ricardo Caballero and Arvind Krishnamurthy propos... more From the Editor: Dear Reader, Several years ago Ricardo Caballero and Arvind Krishnamurthy proposed a theory suggesting that the world economy suffers from a shortage of saving instruments, which is the major cause of global imbalances, low interest rates, deflation, the high popularity of US assets and other glob-al financial markets irregularities. The shortage of saving instruments also makes the world econ-omy vulnerable to financial bubbles. When the main theme for this issue of BT was being select-ed, we did not expect the issue to be published at the time of global financial turmoil, caused by

Should emerging market investors diversify abroad despite superior domestic performance

Social Science Research Network, 2004

are grateful to Sergei Guriev and Galina Ovtcharova for fruitful discussions. We also thank the p... more

On the Empirical Evidence of Mutual Fund Strategic Risk Taking

Research Papers in Economics, 2001

We reexamine empirical evidence on strategic risk-taking behavior by mutual fund managers. Severa... more We reexamine empirical evidence on strategic risk-taking behavior by mutual fund managers. Several studies suggest that fund performance in the …rst semester of a year in ‡uences risk-taking in the second semester. However, we show that previous empirical studies implicitly assume that idiosyncratic fund returns (in a factor model) are uncorrelated across funds. We present generalized methodologies (based on both contingency tables and regression analysis) that accommodate the case of a general error structure. We show that the correlation between idiosyncratic fund returns is essential to the analysis and, when it is taken into account, the empirical evidence of strategic risk taking by fund managers disappears.

Yet another look at mutual fund tournaments

Research Papers in Economics, 2005

We revisit the empirical evidence on the tournament hypothesis for the behavior of mutual fund ma... more We revisit the empirical evidence on the tournament hypothesis for the behavior of mutual fund managers provided by Busse (2001). First, we give analytical expressions for the biases arising in volatility estimates (based on both daily and monthly data) due to first-order autocorrelation effects in daily fund returns. These calculations show that tests of the tournament hypothesis based on monthly data are more robust to autocorrelation effects than tests based on daily data. Second, to address the impact of cross-correlated fund returns on these tests, we provide explicit conditions under which the tests proposed in the literature have appropriate size properties.

Scottish Institute for Research in Investment and Finance (SIRIF) CONFERENCE ON PERFORMANCE OF MANAGED FUNDS

(SIRIF) CONFERENCE ON PERFORMANCE OF MANAGED FUNDS Friday 6 July 2001, Edinburgh CHAIRS: Professo... more (SIRIF) CONFERENCE ON PERFORMANCE OF MANAGED FUNDS Friday 6 July 2001, Edinburgh CHAIRS: Professor Robert Faff, RMIT Professor Pradeep Yadav, University of Strathclyde A. Managers, Incentives and Fund Flows On the Persistence in Performance of Mutual Fund Managers Klaas P. Baks, Wharton School Performance Clustering & Incentives in the UK Pension Fund Industry David Blake, Pensions Institute, and Bruce Lehmann & Allan Timmermann, University of California in San Diego How do Investors React to Mutual Fund Performance A. Goriaev, T. Nijman and B. Werker, Tilburg University Hiring and Firing Fund Managers Sam Wylie, Amos Tuck School, Dartmouth College

Beyond Transition 17 (1)

Closing of Mutual Funds in Russia

HSE Economic Journal, 2016

Recent global financial crisis had significant impact on mutual fund industry both globally and i... more Recent global financial crisis had significant impact on mutual fund industry both globally and in Russia. Total Net Assets and number of funds under management shrank dramatically. In this paper we analyze delisting of mutual funds in Russia. In contrast to existing studies we employ a matching procedure in order to compare liquidated and survived funds. For each liquidated fund we find all similar survived funds by investment style and Total Net Assets. Liquidated funds are smaller, younger, have poor performance records, and suffer from large asset redemption. Most of the mutual funds in Russia are liquidated along with fund management company. We show that Russian management companies are young, suffer from capital shortage and from lack of economies of scale, which sharply increase a probability for them to be liquidated. Our results stress the need for Russian fund management companies to have sufficient capital in order to be able to survive short-term negative shocks. This may help to increase confidence in Russian mutual fund industry and, consequently, develop Russian financial market. During the period of present economic and financial turmoil Russian management companies experience difficulties, which lead to consolidation of the whole industry. Management company liquidations have negative externalities on mutual funds’ investors. Therefore we suggest mergers of unviable management company with healthy ones as the best way to consolidate the industry.

Should Emerging Market Investors Diversify Abroad Despite Superior Domestic Performance?

Social Science Research Network, 2005

are grateful to Sergei Guriev and Galina Ovtcharova for fruitful discussions. We also thank the p... more

The Relative Impact of Different Classification Schemes on Mutual Fund Flows

The US mutual fund industry experienced tremendous growth during the past two decades. In Novembe... more The US mutual fund industry experienced tremendous growth during the past two decades. In November 2001 there were 8,282 mutual funds controlling over US$6.9 trillion dollars in assets, which by far exceeds 665 funds with US$241.4 billion in assets in 1981 (Investment Company Institute, 2001). With so many funds around, investors face a difficult task of selecting a fund with the desired risk and performance profile. Mutual fund categories composed of funds with a similar investment approach help investors to simplify their decision problem. Investors often first choose the category that suits their preferences and then select the best fund in that category, based on fund performance and/or other fund characteristics (see, for example, Kim, Shukla and Tomas, 2000). This investor behavior results in a specific structure of mutual fund flows, which depends on a fund’s relative performance within its category. As a consequence, the classification system also influences the incentives of fund managers, whose compensation is usually based on a percentage of fund assets (see, for example, Khorana, 1996). Given that top performers in a category attract most of the inflows, fund managers have an incentive to maximize their performance relative to other funds in the same category. This may not be consistent with their shareholders’ interests.

Risks of investing in the Russian stock market: Lessons of the first decade

Emerging Markets Review, Dec 1, 2006

The modern history of the Russian stock market has mirrored ups and downs of the country's transi... more The modern history of the Russian stock market has mirrored ups and downs of the country's transition as well as swings in investor perceptions. In this paper, we describe the evolution of the Russian stock market over its first decade, with particular attention to the risk factors driving stock returns. First, we analyze the development of the institutional infrastructure and dynamics of the market's size and liquidity measured by the number of listed and traded stocks, depositary receipts and IPOs as well as trading volume in the local stock exchanges and abroad. Then, we examine major political and economic events, which influenced the investor perceptions of the country risk and were reflected in stock prices. Finally, we carry out quantitative analysis of risk factors explaining considerable time and cross-sectional variation in Russian stock returns. We document a significant role of corporate governance, political risk, and macroeconomic risk factors, such as global equity markets performance, oil prices, and exchange rates, whose relative importance varied a lot over time.

Yet another look at mutual fund tournaments

Journal of Empirical Finance, 2005

Is Political Risk Company-Specific? The Market Side of the Yukos Affair

RePEc: Research Papers in Economics, May 1, 2005

The Yukos affair, a state-led assault on controlling shareholders of a private Russian oil compan... more The Yukos affair, a state-led assault on controlling shareholders of a private Russian oil company, once again demonstrated the shaky nature of property rights in emerging markets. Toughening of the state policy towards business implied higher company-specific political risk and was immediately reflected in lower stock prices. Among private companies, the risk appeared to be especially high for non-transparent companies, oil companies, and companies privatized via ill-famous loans-for-shares auctions. Surprisingly, transparent government-owned companies were also very sensitive to Yukos events. This evidence suggests that investors seriously consider risks of selective government intervention, backdated taxes and privatization review.

Performance information dissemination in the mutual fund industry

RePEc: Research Papers in Economics, 2008

General rights Copyright and moral rights for the publications made accessible in the public port... more General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights.-Users may download and print one copy of any publication from the public portal for the purpose of private study or research-You may not further distribute the material or use it for any profit-making activity or commercial gain-You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright, please contact us providing details, and we will remove access to the work immediately and investigate your claim.

On the behavior of mutual fund investors and managers

Other publications TiSEM, 2002

whose financial and organizational support is gratefully acknowledged. First of all, I would like... more whose financial and organizational support is gratefully acknowledged. First of all, I would like to thank my supervisors without whom this work would have never been accomplished. Theo Nijman introduced me to the topic of mutual funds and gave me indispensable insights in finance as well as general advice. Bas Werker was always available for inspiring discussions, in which he time after time corrected my imprecise statistical statements. Fred Palomino shared a lot of new ideas with me, encouraging me to look at things from a different perspective. I greatly appreciate their kindness and patience answering all my (silly) questions and reviewing numerous versions of the chapters in this thesis. Special thanks go to other members of the committee, Susan Christoffersen, Jenke ter Horst, Frank de Jong, and Chris Veld, for the time and effort they spent on my work. Furthermore, I am indebted to all my colleagues and friends in Tilburg-impossible to mention them all-for creating a relaxed and stimulating atmosphere both during and outside working hours. Finally, I am grateful to my family-parents and older brothers, who gave me support in whatever direction I chose to pursue. May the spirit be with us.

On the Empirical Evidence of Mutual Fund Strategic Risk Taking

RePEc: Research Papers in Economics, 2001

We reexamine empirical evidence on strategic risk-taking behavior by mutual fund managers. Severa... more We reexamine empirical evidence on strategic risk-taking behavior by mutual fund managers. Several studies suggest that fund performance in the …rst semester of a year in ‡uences risk-taking in the second semester. However, we show that previous empirical studies implicitly assume that idiosyncratic fund returns (in a factor model) are uncorrelated across funds. We present generalized methodologies (based on both contingency tables and regression analysis) that accommodate the case of a general error structure. We show that the correlation between idiosyncratic fund returns is essential to the analysis and, when it is taken into account, the empirical evidence of strategic risk taking by fund managers disappears.

The Dynamics of the Impact of Past Performance on Mutual Fund Flows

RePEc: Research Papers in Economics, 2002

This study reconsiders the determinants of°ows into US growth funds, focusing in particular on th... more This study reconsiders the determinants of°ows into US growth funds, focusing in particular on the dynamics of the impact of past performance on°ows. We model the°o w-performance relationship at the monthly frequency, allowing for dependence of the sensitivity of°ows to past performance on size and age of the fund. The dynamics of the impact of past performance is modelled using polynomial lag structures. Performance from 6 to 8 months ago seems to have the strongest impact on net°ows to US growth funds. We observe that performance during the most recent quarter is less important than performance during the remaining three quarters of the¯rst year, suggesting that some investors react to fund performance with a certain lag. Speci¯cations based on average past performance at annual or quarterly frequency are strongly rejected. The¯rst three years of past performance history account for about 90 percent of the total impact of past performance on°ows. The well-documented convexity of the°ow-performance relationship appears robust to allowing for dependence of this relationship on size and age of the fund. The return on systematic risk factors has a small additional impact on top of the impact of risk-adjusted returns.

Transparency, Institutions and Firm Value: Evidence from the Global Financial Crisis

Social Science Research Network, 2010

Abstract We analyze the effect of corporate governance at the firm and country level on decline i... more

Project proposal Evaluating performance and strategy of mutual funds

Mutual Fund Tournament : Risk Taking Incentives Induced by Ranking Objectives

RePEc: Research Papers in Economics, May 1, 2001

There is now extensive empirical evidence showing that fund managers have relative performance ob... more There is now extensive empirical evidence showing that fund managers have relative performance objectives and adapt their investment strategy in the last part of the calendar year to their performance in the early part of the year. However, emphasis was put on returns in excess of some exogenous benchmark return. In this paper, we investigate whether fund managers have ranking objectives (as in a tournament). First, in a two-period model, we analyze the game played by two risk-neutral fund managers with ranking objectives. We derive conditions on the set of possible strategies under which the aggregate amount of risk undertaken in the late period is larger than in the¯rst period. In the second part of the paper, we provide evidence that (i) funds have risk incentives generated by ranking objectives, (ii) risk induced by ranking objectives is mainly idiosyncratic, and (iii) risk incentives generated by ranking objectives are stronger for funds ranked in the top decile after the¯rst part of the year.

New Economic School

Mutual funds' performance rankings are widely publicized in the media and have a strong impact on... more Mutual funds' performance rankings are widely publicized in the media and have a strong impact on fund flows (see, e.g., Sirri and Tufano, 1998). In this paper, we study risk taking incentives of mutual fund managers who have ranking objectives (as in a tournament). First, in a two-period model, we analyze the game played by two risk-neutral fund managers with ranking objectives. We show that in the first period, managers choose the same risk level but do not act in the interest of investors. In the second period the interim loser (i) takes more risk than the interim winner and (ii) the level of risk undertaken by the interim loser is increasing with the difference in interim performances. Second, we empirically test some predictions of the model in a sample of diversified US equity funds in 1976-1999, using a more powerful methodology than in previous studies and accounting for cross-correlation in fund returns. We find evidence that funds' choice of systematic risk in the second part of the year is negatively related to their interim performance, which is consistent with the model.

From Red to Grey: a Third Transition

From the Editor: Dear Reader, Several years ago Ricardo Caballero and Arvind Krishnamurthy propos... more From the Editor: Dear Reader, Several years ago Ricardo Caballero and Arvind Krishnamurthy proposed a theory suggesting that the world economy suffers from a shortage of saving instruments, which is the major cause of global imbalances, low interest rates, deflation, the high popularity of US assets and other glob-al financial markets irregularities. The shortage of saving instruments also makes the world econ-omy vulnerable to financial bubbles. When the main theme for this issue of BT was being select-ed, we did not expect the issue to be published at the time of global financial turmoil, caused by

Should emerging market investors diversify abroad despite superior domestic performance

Social Science Research Network, 2004

are grateful to Sergei Guriev and Galina Ovtcharova for fruitful discussions. We also thank the p... more

On the Empirical Evidence of Mutual Fund Strategic Risk Taking

Research Papers in Economics, 2001

We reexamine empirical evidence on strategic risk-taking behavior by mutual fund managers. Severa... more We reexamine empirical evidence on strategic risk-taking behavior by mutual fund managers. Several studies suggest that fund performance in the …rst semester of a year in ‡uences risk-taking in the second semester. However, we show that previous empirical studies implicitly assume that idiosyncratic fund returns (in a factor model) are uncorrelated across funds. We present generalized methodologies (based on both contingency tables and regression analysis) that accommodate the case of a general error structure. We show that the correlation between idiosyncratic fund returns is essential to the analysis and, when it is taken into account, the empirical evidence of strategic risk taking by fund managers disappears.

Yet another look at mutual fund tournaments

Research Papers in Economics, 2005

We revisit the empirical evidence on the tournament hypothesis for the behavior of mutual fund ma... more We revisit the empirical evidence on the tournament hypothesis for the behavior of mutual fund managers provided by Busse (2001). First, we give analytical expressions for the biases arising in volatility estimates (based on both daily and monthly data) due to first-order autocorrelation effects in daily fund returns. These calculations show that tests of the tournament hypothesis based on monthly data are more robust to autocorrelation effects than tests based on daily data. Second, to address the impact of cross-correlated fund returns on these tests, we provide explicit conditions under which the tests proposed in the literature have appropriate size properties.

Scottish Institute for Research in Investment and Finance (SIRIF) CONFERENCE ON PERFORMANCE OF MANAGED FUNDS

(SIRIF) CONFERENCE ON PERFORMANCE OF MANAGED FUNDS Friday 6 July 2001, Edinburgh CHAIRS: Professo... more (SIRIF) CONFERENCE ON PERFORMANCE OF MANAGED FUNDS Friday 6 July 2001, Edinburgh CHAIRS: Professor Robert Faff, RMIT Professor Pradeep Yadav, University of Strathclyde A. Managers, Incentives and Fund Flows On the Persistence in Performance of Mutual Fund Managers Klaas P. Baks, Wharton School Performance Clustering & Incentives in the UK Pension Fund Industry David Blake, Pensions Institute, and Bruce Lehmann & Allan Timmermann, University of California in San Diego How do Investors React to Mutual Fund Performance A. Goriaev, T. Nijman and B. Werker, Tilburg University Hiring and Firing Fund Managers Sam Wylie, Amos Tuck School, Dartmouth College