“Do Shocks to Personal Wealth Affect Risk Taking in Delegated Portfolios” by Veronkia K. Pool
Veronika K. Pool
Scott E. Yonker
Nanyang Technological University
Using exogenous wealth shocks stemming from the collapse of the housing market, we show that managers who experience substantial losses in their home values subsequently reduce the risk in their funds. The decline in fund risk is seen in total risk, idiosyncratic risk, systematic risk, and in tracking error. Our paper provides evidence that the idiosyncratic personal preferences of mutual fund managers affect their professional decisions and offers a methodology for testing for manager effects that is not subject to the selection critique of Fee, Hadlock, and Pierce (2013).