Mutual fund volatility timing and management fees

Erasmo Giambona, Joseph Golec

Research output: Contribution to journalArticlepeer-review

15 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)589-599
Number of pages11
JournalJournal of Banking and Finance
Volume33
Issue number4
DOIs
StatePublished - Apr 1 2009
Externally publishedYes

Keywords

  • Management fees
  • Mutual fund
  • Volatility timing

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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