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Review of Financial Studies Vol. 32 No. 4 2019

Do Shocks to Personal Wealth Affect Risk-taking in Delegated Portfolios?

Veronika Krepely Pool1; Noah Stoffman1; Scott E. Yonker2; Hanjiang Zhang3

1 Kelley School of Business, Indiana University · 2 Dyson School of Applied Economics and Management, Cornell University · 3 Carson College of Business, Washington State University

Abstract

Using exogenous wealth shocks stemming from the collapse of the housing market, we show that managers who experience substantial losses in their home values subsequently reduce risk in their delegated funds. The decline in fund risk comes through reductions in idiosyncratic risk and tracking error, suggesting that the behavior is likely driven by career concerns. Our paper provides evidence that idiosyncratic personal preferences affect mutual fund managers’ professional decisions and offers a methodology for testing for manager effects that is not subject to the selection critique of Fee, Hadlock, and Pierce (2013). Received March 30, 2016; editorial decision February 28, 2018 by Editor Itay Goldstein. Editor Itay Goldstein.

DOI
10.1093/rfs/hhy096
Volume
32
Issue
4
Pages
1457-1493
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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