The relation of fund characteristics and fund familymembership to equity funds’ risk-taking behavior -Empirical evidence from the equity fund market in Finland

摘要

The first objective of this thesis is to reveal if equity funds with certain characteristics (e.g.large asset size, high fees) commit to certain type of risk-taking behavior in the Finnish fundmarket. Fund volatility is employed to measure funds’ risk-taking behavior, and a marketadjustedvolatility ratio is introduced in order to commensurate volatility levels of fundsoperating in different markets.The second objective is to assess if equity funds’ membership in a retail bank-backed fundfamily affects funds’ risk-taking behavior (family fund) in a way that their behavior differsfrom the risk-taking of funds with no retail bank background (non-family fund). Also, the goalis to find out if riskier or less risky funds are clustered into certain fund families.The thesis uses monthly equity fund data collected from the official Mutual Fund Reports,published by the Federation of Finnish Financial Services. The sample includes all equityfunds marketed in Finland and included to the Mutual Fund Reports during the sample period.The aggregate dataset consists of 27,372 monthly observations, covering a period fromJanuary 1998 to July 2009. Monthly figures for fund characteristics are collected, andmonthly volatility levels for both sample funds and their respective market benchmark indicesare gathered. Market indices are MSCI Barra indices, and identical with the officialbenchmarks used on the Mutual Fund Reports.The main characteristic related to risk-taking is the size of assets under management (AUM).Smaller funds commit to higher volatility levels both in absolute and market-adjusted terms.Lower subscription fees are charged by funds that favor higher volatility levels, whereas otherfund fee types show no statistical relation. Funds having performed worse in previous monthcommit to higher risk levels during the following month whereas well-performed funds tendto commit to relatively lower risk levels in the following period.The second main finding states that funds belonging to a fund complex of a Finnish retailbank differ from the funds of non-retail bank funds. Within the nine largest retail bank fundfamilies in Finland, risk is not randomly distributed across families, and low risk funds tend tobe concentrated in smaller fund families. The risk concentration in turn can have a majorimpact on the risk profile of an investor confining her investments to a single fund family.