Abstract
Previous findings regarding the risk-shifting behavior of mid-year underperforming mutual fund managers are mixed. In this article, I show that this is due to a which is caused by the sorting of first-half risk levels when establishing relative mid-year performance. Even without risk-shifting behavior, mean reversion of these sorted risk levels results in the detection of tournament behavior. After correcting for this bias, I find evidence supporting the hypothesis that first-half underperforming managers increase portfolio risk during the second half of the year and that this tournament behavior is not dependent on first-half market conditions. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.
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