Norwegian mutual fund tournament

Abstract

We analyze if Norwegian equity funds have a tendency to alter their risk based on their performance relative to competing equity funds, called mutual fund tournament. The incentive for this behavior is that fund managers are competing for investor capital, as an increase in a fund’s asset value often yields higher compensation, and investors often chose funds based on their previous performance. Our sample period reaches from 1998 to 2012 and includes monthly returns from 77 Norwegian equity funds. We apply a contingency table approach, as well as a regression approach to examine if funds participate in annual tournaments. Our results show mixed evidence of tournament behavior in the Norwegian equity fund industry. We find signs of tournament behavior from 2006 to 2012, but when testing for robustness in this period, the tests show indistinct results. Overall our analysis shows evidence and tendencies for tournament behavior in the Norwegian equity fund market in some periods, however with the contradictory results we cannot give a definite conclusion about the presence of a Norwegian mutual fund tournament.