Mutual fund volatility timing and management fees |
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Authors: | Erasmo Giambona Joseph Golec |
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Institution: | 1. Finance Group, University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands;2. Department of Finance, School of Business, University of Connecticut, 2100 Hillside Road, Unit 1041, Storrs, CT 06269-1041, United States |
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Abstract: | This paper shows that compensation incentives partly drive fund managers’ market volatility timing strategies. Larger incentive management fees lead to less counter-cyclical or more pro-cyclical volatility timing. But fund styles or aggregate fund flows could also account for this relation; therefore, we control for them and find that the relation between fees and volatility timing still holds. Results show that less aggressive fund styles are associated with pro-cyclical volatility timing, and that volatility timing and flow timing are negatively related. We also find that pro-cyclical timing mostly improves funds’ average excess returns, Sharpe ratios, and alphas. |
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Keywords: | G11 G23 |
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