Do Shocks to Personal Wealth Affect Risk-taking in Delegated Portfolios?

Abstract

Using exogenous wealth shocks stemming from the collapse of the housing market, we show that managers who experience substantial losses in their home values subsequently reduce the risk in their funds. The decline in fund risk is seen in total risk, idiosyncratic risk, systematic risk, and in tracking error. Our paper provides evidence that the idiosyncratic personal preferences of mutual fund managers aect their professional decisions and oers