RFS Advance Access originally published online on December 14, 2007
Review of Financial Studies 2008 21(2):1013-1036; doi:10.1093/rfs/hhm057
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Tournaments in Mutual-Fund Families
Center for Financial Research Cologne and University of Cologne
Center for Financial Research Cologne and University of Cologne
Address correspondence to Stefan Ruenzi, Department of Finance, University of Cologne, Albertus-Magnus-Platz, 50923 Koeln, Germany; e-mail: ruenzi{at}wiso.uni-koeln.de; telephone: (++49)+221-4706-966; fax: (++49)+221-470-3992.
JEL Classification: G20, G23, J49
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Abstract |
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We examine intrafirm competition in the mutual-fund industry. We test the hypothesis that fund managers within mutual-fund families compete with each other in a tournament. Our empirical study of the US equity mutual-fund market shows that they adjust the risk they take depending on the relative position within their fund family. The direction of the adjustment depends on the competitive situation in that family. Risk adjustments are particularly pronounced among managers of funds with high expense ratios, which are managed by a single manager and which belong to large families.
The authors would like to thank Matthew Spiegel (the editor) and an anonymous reviewer as well as Amanda Adkisson, Vikas Agarwal, Thomas Burkhardt, Joachim Grammig, Knut Griese, Philippe Jorion, Katja Kaufmann, Ajay Khorana, Olaf Korn, Alexandra Niessen, Martin Ruckes, Henri Servaes, Laura Starks, Jonathan Taylor, Ulf von Lilienfeld-Toal, Russ Wermers, Pradeep Yadav, Lu Zheng, and participants of the meetings of the BSI Gamma Foundation in Zuerich in 2002 and the European Finance Association (EFA) Meeting in Glasgow in 2003 for helpful comments. Financial support from the BSI Gamma Foundation is gratefully acknowledged. All remaining errors are our own.