Portfolio Manager Ownership and Mutual Fund Risk Taking

• Main Authors: Ma, Linlin, TANG, Yuehua
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2014
• Subjects: Mutual Funds; Portfolio Manager Ownership; Risk Shifting; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4546; https://ink.library.smu.edu.sg/context/lkcsb_research/article/5545/viewcontent/SSRN_id2024119.pdf
• Institution: Singapore Management University

We study the effect of portfolio manager ownership, that is, “skin in the game”, on the risk taking of mutual funds. Using a holdings-based risk-shifting measure and a difference-indifferences approach, we find that managers with greater ownership engage in less risk-shifting behavior. We also find that managers with higher ownership exhibit superior reward-to-risk (i.e., Sharpe and appraisal) ratios. Funds with greater managerial ownership attract more capital flows. Taken together, our findings indicate that managerial ownership reduces managers’ incentive to engage in risk-shifting behavior and increases shareholder wealth.