Abstract
This study examines the relationship between fund past performance and manager choice of portfolio risk in Taiwan. Employing the exponential generalized autoregressive conditional heteroscedasticity and linear regression models, the results demonstrate that historically poor average performance does not increase mutual fund tracking error (TE) or portfolio risk. Additionally, yearly tournament behaviour, namely mid-year losers increasing their last-half year TEs, only appears in funds with higher management fees. This implies that managers of high management fee funds actively increase TE in response to poor historical performance, to enable them to beat the market during future months or the second half of the year.
Notes
1 The detailed description for TEs and risk-adjusted returns corresponding to CAPM, Fama–French three factor and Carhart four factor models is presented in Section II of this study.
2 lists the distribution of EGARCH parameter for Model (3) suggested by Chen and Pennacchi (Citation2009). Following Chen and Pennacchi (Citation2009), hence adopts only the TAIEX as the benchmark. Additionally, because the main regression results for Models (1) and (2) have been shown on , to save space, adopts only TAIEX as the benchmark to display the distribution of parameter estimates for Models (1) and (2).
3 The detailed web sites are, respectively, displayed as follows. https://tw.money.yahoo.com/fund/ranklist; http://www.moneydj.com/; http://fund.pchome.com.tw; http://fund.cnyes.com/Page/ranking.aspx; and http://www.gogofund.com/convch/index.asp