Fund Flows, Performance, Managerial Career Concerns, and Risk-Taking

Indian mutual fund industry: Opportunities and challenges

“…The evidence in Chevalier and Ellison (1999a) indicates that fund managers do indeed face significant risk of losing the job. Hu et al (2011) show that when the manager's payoff is convex and with absent career risk, all managers, over-and under-performing, will increase risk. However, including career risk in the mix leads to a nonmonotonic, roughly U-shaped, relation between risktaking and prior performance e risk-taking is initially decreasing and ultimately increasing in prior performance.…”

“…The manager of the top-performing fund, on the other hand, is so far away from being fired that he increases risk simply to avail of the benefits of the convex payoff. Hu et al (2011) provide empirical evidence that the relation between prior performance and risk-taking is U-shaped. Another recent paper, Huang, Sialm, and Zheng (2011) also provides evidence that is consistent with such a non-monotonic relation between prior fund performance and managerial risk taking.…”

Investment stage drifts and venture capital managerial incentives

“…strand of literature drawing from these works has investigated the risk taking behavior of mutual funds' managers (Brown et al, 1996;Chevalier and Ellison, 1997;Hu et al, 2011;Kempf et al, 2009). We apply the relevant conceptual results of this literature to the case of VC funds.…”

“…Given that the decision to drift directly results in a change of the portfolio risk, our idea is that upward or downward drifts cannot be explained by the same determinants. 1 By a theoretical perspective, we investigate in deeper detail to what extent stage drifts can be explained as outcomes of managerial incentive schemes from the literature on managerial risk taking in response to compensation, tournament and employment incentives for mutual funds (Brown et al, 1996;Chevalier and Ellison, 1997;Hu et al, 2011;Kempf et al, 2009). We depart and apply the conceptual framework drawn from this literature to the VC funds.…”

Mutual fund industry management structure, risk and the impacts to shareholders

“…However, Kempf and Ruenzi (2008) report that the risk taking behavior of fund managers is not consistent. Hu, Kale, Pagani, and Subramanian (2008) find that fund managers with extremely bad performance after the first half of the year are more likely to 'gamble for resurrection.' Similarly, Goetzmann, Ingersoll, and Ross (2003) report that incentives for managers are based on the manager's ability to exceed the previously achieved maximum share value which encourages risk taking.…”