Historical Performance And Risk-Shifting In Mutual Funds
Author(s) Apoorva Javadekar


I document new evidence regarding the risk-shifting behavior of mutual fund man- agers. First I show that the historical fund performance influences fund-flow patterns as well as employment incentives for the managers. Second I show that the managerial risk-shifting in response to their midyear position is influenced by the historical performance. In addition, the direction of risk-shifting is consistent with the directions in which historical performance alters the incentives. The risk-shifting for the managers with excellent track record is driven primarily by the fund-flow incentives.

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