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| Author: | Berkowitz, M. Kotowitz, Y. |
| Title: | Investor risk evaluation in the determination of management incentives in the mutual fund industry |
| Journal: | Journal of Financial Markets
2000 : NOV, VOL. 3:4, p. 365-388 |
| Index terms: | UNIT TRUSTS COMPENSATION RISK |
| Language: | eng |
| Abstract: | This paper examines the way in which investors evaluate risk in deciding which mutual funds to invest. New fund investment is found to be positively related to a distributed lag of past fund performance with a strong degree of inertia. The relationship is mostly linear with significant nonlinearities at the upper end of the performance spectrum. Investors appear to use publicly available data in a way that is consistent with the theory, giving equal weight in their decisions to the return and market risk components of the performance measure, while ignoring diversifiable risk. |
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