Mutual Fund Tournaments: The Sorting Bias and New Evidence
Review of Financial Studies
2012
Previous findings regarding the risk-shifting behavior of mid-year underperforming mutual fund managers are mixed. In this article, I show that this is due to a “sorting bias,” which is caused by the sorting of first-half risk levels when establishing relative mid-year performance. Even without risk-shifting behavior, mean reversion of these sorted risk levels results in the detection of tournament behavior. After correcting for this bias, I find evidence supporting the hypothesis that first-half underperforming managers increase portfolio risk during the second half of the year and that this tournament behavior is not dependent on first-half market conditions.
- DOI
- 10.1093/rfs/hhr091
- Volume
- 25 (3)
- Pages
- 913-936
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref