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Time-Varying Incentives in the Mutual Fund Industry

Author

Listed:
  • Jacques Olivier

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Anthony Tay

    (SIS - Singapore Management University)

Abstract

This paper re-examines the incentives of mutual fund managers arising from investor flows. We provide evidence that the convexity of the flow-performance relationship varies with economic activity. We show that the effect is economically large and is not driven by abnormal years. We test two possible channels through which this pattern may arise. We investigate implications of the time-varying convexity for the incentives of managers to alter strategically the risk of their portfolios. We provide evidence that poor mid-year performers increase the risk of the portfolio only when economic activity is strong. Finally, we briefly discuss some methodological implications.

Suggested Citation

  • Jacques Olivier & Anthony Tay, 2008. "Time-Varying Incentives in the Mutual Fund Industry," Working Papers hal-00489985, HAL.
    • Handle: RePEc:hal:wpaper:hal-00489985
    as

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    Cited by:

    1. David H. Downs & Steffen Sebastian & Christian Weistroffer & René-Ojas Woltering, 2016. "Real Estate Fund Flows and the Flow-Performance Relationship," The Journal of Real Estate Finance and Economics, Springer, vol. 52(4), pages 347-382, May.

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