In this paper, we interpret the flow-performance relationship as an incentive scheme implicitly given to mutual fund managers by mutual fund investors. We show that the flow-performance relationship varies not only with economic activity but also across fund attributes. We provide evidence that the degree of convexity of the flow-performance relationship has a positive effect on the magnitude of tournament behavior. Different from the conventional tournament hypothesis, we show that although the convexity of the flow-performance relationship does produce implicit incentives for fund managers to modify risk-taking behavior as a function of their prior performance, whether or not the mid-year losers increase the risk of their portfolios highly depends on the convexity degree of the flow-performance relationship.
|Advisor:||Tay, Anthony S.|
|School:||Singapore Management University (Singapore)|
|Department:||School of Economics|
|School Location:||Republic of Singapore|
|Source:||MAI 48/06M, Masters Abstracts International|
|Subjects:||Economics, Finance, Banking|
|Keywords:||Financial performance, Flow-performance relationship, Mutual fund flows, Mutual funds, Portfolio management|
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