TY  - JOUR
AU  - Chevalier,Judith A.
AU  - Ellison,Glenn D.
TI  - Risk Taking by Mutual Funds as a Response to Incentives
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5234
PY  - 1995
Y2  - August 1995
UR  - http://www.nber.org/papers/w5234
L1  - http://www.nber.org/papers/w5234.pdf
N1  - Author contact info:
Judith A. Chevalier
Yale School of Management
135 Prospect Street
New Haven, CT  06520
Tel: 203/432-3122
Fax: NA
E-Mail: judith.chevalier@yale.edu

Glenn Ellison
Department of Economics
Massachusetts Institute of Technology
50 Memorial Drive, E52-380A
Cambridge, MA 02142-1347
Tel: 617/253-8702
Fax: 617/253-1330
E-Mail: gellison@mit.edu
AB  - This paper examines the agency conflict between mutual fund investors and mutual fund companies.  Investors would like the fund company to use its judgement to maximize risk-adjusted fund returns. A fund company, however, in its desire to maximize its value as a concern has an incentive to take actions which increase the inflow of investment.  We use a semiparametric model to estimate the shape of the flow-performance relationship for a sample of growth and growth and income funds observed over the 1982-1992 period.  The shape of the flow-performance relationship creates incentives for fund managers to increase or decrease the riskiness of the fund which are dependent on the fund's year-to-date return.  Using a new dataset of mutual fund portfolios which includes equity portfolio holdings for September and December of the same year, we show that mutual funds do alter their portfolio riskiness between September and December in a manner consistent with these risk incentives.
ER  -