Chevalier, Judith and Glen Ellison, 1997. "Risk Taking by Mutual Funds as a Response to Incentives." Journal of Political Economy 105, pp. 1167-1200.  Home/Search   Document Not in Database   Summary   Related Articles   Check

....of assets and is paid in equal installments over the year. Although the fee contracted with the Board is constant during the year, the competitive fee charged to the investor might vary because fund managers often voluntarily and unilaterally waive the fees they are contractually allowed to claim. Chevalier and Ellison (1997) and Brown, Harlow, and Starks (1996) show that a nonlinear relation between flows and relative performance in equity funds encourages risk taking on the part of managers because of the incentive to build asset size. Just as managers adjust risk in equity funds, money market managers adjust fees ....

....fund flows and their relative performance. The next section estimates fund flows as a function of relative performance to determine whether changes in investor price sensitivity are reflected in the manager s waiver decision. III. The Fund Flow Hypothesis for Fee Waiving Sirri and Tufano (1998) Chevalier and Ellison (1997), and Ippolito (1992) document that equity fund flows are more responsive to lagged net returns in high performance regions than in low performance regions. The results for money market fund flows are similar. Fund flows are more responsive to lagged net returns for funds in the top 20 percent ....

Chevalier, Judith, and Glenn Ellison, 1997, Risk taking by mutual funds as a response to incentives, Journal of Political Economy 105, 1167-1200.

....payroll. Wall Street Journal, Heard on the Street column, October 29, 1991 (see Stickel (1992) According to Fortune Nov 10, 1997: 1 million is said to be the typical pay di#erential between a first place analyst and an also ran. http: www.pathfinder.com fortune 1997 971110 fst2.html) Chevalier and Ellison (1997) report a strong empirical relation between the flow into funds and a funds performance. 2 quality types and herding are common results. 2 However, there is another important e#ect that introduces implicit elements of relative performance evaluation. The expected demand an individual adviser ....

Chevalier, J. and Ellison, G. (1997). Risk taking by mutual funds as a response to incentives. Journal of Political Economy, 105(6):1167--1200.

....in the mutual fund industry implies that winners take all in this segment. As a result of the convexity in rewards, mutual fund managers have an implicit incentive to alter the risk of their portfolios to increase the chances that they are among the winners. Brown, Harlow, and Starks (1996) and Chevalier and Ellison (1997) find empirical support for this prediction. In contrast, we show that several forces combine to weaken the incentive for pension fund managers to engage in this same type of riskshifting behavior. In addition to the lack of convexity in the flow performance relation and the withdrawal of assets ....

....manager and 15 terminated and hired a manager within the year. 2 Previous evidence suggests that past performance influences the manager selection and termination decision, and is thereby an important determinant of flow. Despite different sample periods, methodologies, and performance measures, Chevalier and Ellison (1997), Gruber (1996) Patel, Zeckhauser, and Hendricks (1994) Ippolito (1992) and Sirri and Tufano (1998) all find that past performance is an important determinant of flow in the mutual fund segment. Lakonishok et al. (1992) provide some evidence that performance is related to the growth in the ....

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Chevalier, Judith and Glenn Ellison, 1997, Risk taking by mutual funds as a response to incentives, Journal of Political Economy 105, 1167-1200.

....or as a 0 to 1 rank) or data set used to estimate the models, the evidence confirms a significant, positive relationship between funds flow and prior year performance. This is consistent with other studies measuring the flow performance relationship for retail funds (such as Ippolito (1992) and Chevalier and Ellison (1997) who use rate of return, and Sirri and Tufano (1998) who use return rank) The sensitivity coefficient estimates for rate of return performance (one lag) range from 2.4 to 7.1 indicating that a fund s growth rate would increase by about 2.4 to 7.1 percent for every 100 basis points of positive ....

....in performance rank would be associated with a 5.3 to 12 percent increase in fund flow. The parameter estimates for the performance variables are higher using the full data set suggesting that investors respond more strongly to the performance of small, young funds. This is consistent with Chevalier and Ellison s (1997) evidence that older funds flows are less sensitive to recent performance. Also, to the extent that the size control in the model does not fully eliminate the bias of fund size (small asset increases translate into large percentage flows for small funds) some reduction in the parameter estimates ....

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Chevalier, J. and G. Ellison, 1997, Risk taking by mutual funds as a response to incentives, Journal of Political Economy 105, 1167-1200.

....portfolio. In particular, the money manager can control the riskiness of the portfolio. One can expect that money managers adjust the risk level in order to maximize their (implicit or explicit) compensation. This type of behavior is sometimes referred to as gaming the fee. Chevalier and Ellison [3] have analyzed the return and the variance of a sample of mutual funds. 1 They have found that the variance of a fund in the last quarter of the year is negatively correlated to the performance of the same fund in first three quarters. This suggests that fund managers condition their last ....

Judith Chevalier and Glenn Ellison. Risk taking by mutual funds as a response to incentives. Journal of Political Economy, 105(6):1167---1200, 1997.

....a certain amount of standardization of reporting on risk taking activities. Generally Accepted Risk Principles may have to be developed to complement Generally Accepted Accounting Principles. 7 Incentive Compensation 2 An empirical paper dealing with incentive compensation for risk taking is Chevalier and Ellison (1997). They show that the relationship between a mutual fund s annual performance and the next year s inflows to the fund is nonlinear: above average performance is rewarded by more 10 than below average performance is punished. The driving force behind this nonlinearity is presumably the limited ....

Chevalier, Judith and Glenn Ellison, 1997, "Risk taking by mutual funds as a response to incentives," Journal of Political Economy 105, 116771200.

....financial decision, and a bargaining exercise. By pursuing riskier strategies in these tasks, goal participants in all three studies accepted lower expected values for their final outcomes. It is interesting to note that economists have also found a link between goals and risk taking. For example, Chevalier Ellison (1997) found that mutual fund managers below specific performance thresholds tend to take greater risks toward the end of the year. Mutual fund companies, in effect, receive a reward for achieving such thresholds (e.g. increased media exposure if a fund finishes among the top ten performers in an ....

Chevalier, J. & Ellison, G. (1997). Risk taking by mutual funds as a response to incentives. Journal of Political Economy, 105, 1167-1200.

....outsiders infer from disclosures. There is plenty of evidence that outsiders infer something from disclosures. Consumers pay for services like Morningstar which report and analyze disclosed portfolios, and academics often use disclosed portfolios as proxies for undisclosed portfolios (e.g. Chevalier and Ellison (1995), Sias and Starks (1997) If managers conclude that disclosures influence judgments about their professional behavior or ability, it is at least plausible that they would want to window dress. This motive is stronger when money funds are involved because there is little information outside of ....

Chevalier, J., and Ellison, G., 1995, Risk taking by mutual funds as a response to incentives, National Bureau of Economic Research.

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Chevalier, Judith and Glen Ellison, 1997. "Risk Taking by Mutual Funds as a Response to Incentives." Journal of Political Economy 105, pp. 1167-1200.

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Chevalier, Judith and Glenn Ellison, 1997, Risk Taking by Mutual Funds as a Response to Incentives, forthcoming, Journal of Political Economy.

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Chevalier, J. and G. Ellison, August 1995, "Risk taking by mutual funds as a response to incentives", NBER Working Paper #5234.

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Chevalier, J., and G., Ellison, 1997, Risk taking by mutual funds as a response to incentives, Journal of Political Economy, 105: 1167-1200.

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Chevalier, J. and Ellison, G. (1995), "Risk Taking by Mutual Funds as a Response to Incentives", NBER, working paper.

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Chevalier, Judith and Glenn Ellison, 1997, "Risk Taking by Mutual Funds as a Response to Incentives", forthcoming, Journal of Political Economy.

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Chevalier, J., and Ellison, G. (1997) 'Risk Taking by Mutual Funds as a Response to Incentives'. Journal of Political Economy, 105, 1167-1200.

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