Fund Family Tournament and Performance Consequences: Evidence from the UK Fund Industry

Zhang, Zhichao; Ding, Li; Zhou, Si; Fu, Yaoyao

Volume 18, Numbers 1 & 2 / March/June , Pages 1-167

Multinational Finance Journal, 2014, vol. 18, no. 1/2, pp. 43-84
Zhichao Zhang , Durham University, UK
Li Ding , Durham University, UK

Si Zhou , Durham University, UK Corresponding Author

Yaoyao Fu , Durham University, UK

Abstract:
By applying tournament analysis to the UK Unit Trusts data, the results support significant risk shifting in the family tournament; i.e. interim winning managers tend to increase their level of risk exposure more than losing managers. It also shows that the risk-adjusted returns of the winners outperform those of the losers following the risk taking, which implies that risk altering can be regarded as an indication of managers’ superior ability. However, the tournament behaviour can still be a costly strategy for investors, since winners can be seen to beat losers in the observed returns due to the deterioration in the performance of their major portfolio holdings.

Keywords : mutual fund family; fund performance; tournament; risk taking
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