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On the Demand for High-Beta Stocks: Evidence from Mutual Funds

Susan E. K. Christoffersen1; Mikhail Simutin2

1 University of Toronto and Copenhagen Business School · 2 University of Toronto

Review of Financial Studies 2017 open access

Prior studies have documented that pension plan sponsors often monitor a fund’s performance relative to a benchmark. We use a first-difference approach to show that in an effort to beat benchmarks, fund managers controlling large pension assets tend to increase their exposure to high-beta stocks, while aiming to maintain tracking errors around the benchmark. The findings support theoretical conjectures that benchmarking can lead managers to tilt their portfolio toward high-beta stocks and away from low-beta stocks, which can reinforce observed pricing anomalies.

DOI
10.1093/rfs/hhx022
Volume
30 (8)
Pages
2596-2620
Language
en
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