Journal of Financial Services Research

, Volume 51, Issue 1, pp 125–163 | Cite as

Strategic Choice of Risk: Evidence from Mutual Fund Families

  • Chia-Ying Chan
  • Christine W. Lai
  • Liang-Chung Lee


This study examines family-level risk taking behavior from the perspective of the strategic choice of risk. We examine whether family-level risk taking tendency is affected by a fund family’s flow tournament position in the mutual fund industry. We use family-level excess fund flow, which is defined by the gap between the actual net flows and expected net flows of a fund family, to proxy for its interim fund-flow tournament position. A fund family is an interim winner (loser) if it experiences better (worse) than expected net flows. Two measures are used to proxy for risk taking strategy: (1) Active Share; and (2) the Standard Deviation of Fund Holdings at Family Level. Overall, we conclude that fund families classified as interim losers and top interim winners in a net flow tournament position exhibit risk taking propensities. Bottom dwellers increase risk for survival, whereas leaders increase risk to retain their leadership.


Risk taking Strategic choice of risk Fund-flow tournament Mutual fund family 

JEL Classification

G20 G23 



Christine W. Lai (corresponding author) wishes to thank the Ministry of Science and Technology in Taiwan for awarding a grant 103-2410-H-003 -031 -.


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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  • Chia-Ying Chan
    • 1
  • Christine W. Lai
    • 2
  • Liang-Chung Lee
    • 3
  1. 1.Division of Finance, College of Management, Innovation Center for Big Data and Digital ConvergenceYuan Ze UniversityTaoyuan CountyTaiwan
  2. 2.Graduate Institute of Management, College of ManagementNational Taiwan Normal UniversityTaipei CityTaiwan
  3. 3.College of ManagementYuan Ze UniversityTaoyuan CountyTaiwan

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