Research on Factors of Fund Managers’ Risk Shifting Behavior
Date Issued
2015
Date
2015
Author(s)
Zhang, Meng-Yang
Abstract
This paper examine the factors that affect managerial risk shifting due to compensation incentives and employment incentives as well as risk surprise. The empirical investigation is based on data of mix-stock and common stock open-end funds of China during 2006 – 2014. This paper constructs deviation from the expectation as the proxy of managerial risk shifting behavior using detailed data of funds’ asset allocation. Then, we analyze these factors by contingency table approach and regression approach. Based on a thorough empirical investigation, firstly, we find that due to inadequate payment system in China, compensation incentives have insignificant influence on fund managers’ risk shifting behavior. Secondly, when employment incentives dominate, mid-year-performance losers tend to decrease risk relative to mid-year-performance winners to prevent potential job loss. In addition to the compensation incentives and employment incentives, the deviation from the expectation when facing risk surprise is the most crucial factors for fund managers’ risk shifting behavior. We also find that the best mid-year-performance fund managers are of the greatest tendency to increase portfolio risk during the next half year. Finally, this paper shows the tenure of fund manager is relative to their risk shifting behavior while the fund is managed by a single manager (team) doesn’t matter.
Subjects
Risk shifting behavior
Compensation incentives
Employment incentives
Risk surprise
Open-end funds of China
Type
thesis
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ntu-104-R02724061-1.pdf
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