A Tournament Model of Fund Management |
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| Authors: | Daniella Acker Nigel W. Duck |
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| Affiliation: | The authors are from the School of Economics, Finance and Management, University of Bristol. They are grateful to David Ashton, John Core, David Demery, Kees Jan van Garderen, Ian Jewitt, Hedley Rees, Suro Sahay, Ian Tonks and an anonymous referee for helpful comments. Any remaining errors are entirely the authors' own responsibility. |
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| Abstract: | Abstract: We develop a tournament model of portfolio management and test it on UK investment trusts. Our model extends the literature by analysing middle-ranking funds who aim to beat a benchmark; spanning two periods; focusing on 'extreme' portfolios; and using a signal-extraction framework. We predict that 'losing' managers will adopt extreme portfolios, and increasingly so, the further behind the fund is and the nearer the ranking date. Losing managers will choose high/low market exposure depending both on anticipated market movements and on whether they have sufficient assets to take advantage of a rising market. Our empirical tests support these predictions. |
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| Keywords: | tournament fund management investment trusts mutual funds |
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