Mutual Fund Tournaments: The Sorting Bias and New Evidence

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CFA Digest
August 2012 | Vol. 42 | No. 3
Source: CFA Institute
Christopher G. Schwarz
Ghazal Zahid Khan, CFA (Reviewer)

Abstract

The author studies the validity of his hypothesis that mutual fund managers with low performance in the first half of the year increase their risk levels in the second half of the year. He finds statistically significant results in favor of his hypothesis and claims that this “tournament behavior” exists regardless of the sorting bias inherent in traditionally calculated portfolio risk and return data.

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Topics
Behavioral Finance
    :
  • Institutional Investor Decision Making
|
Portfolio Management
    :
  • Mutual Funds, Pooled Funds, and Exchange-Traded Funds (ETFs)
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