Konkurrence & konsekvens: En empirisk undersøgelse af turneringsteori blandt investeringsforeninger

Abstract

This paper investigates how mutual fund managers adjust key portfolio characteristics as a strategic response to underperformance relative to their benchmarks. Building on Tournament Theory, this paper extends existing literature by analyzing a broader set of portfolio characteristics — volatility, active share, portfolio concentration, and sustainability score — within the context of a three-year mutual fund tournament. The empirical analysis is based on a panel dataset of actively managed, US-domiciled equity mutual funds from 2014 to 2024. A panel regression framework with fixed effects is employed to examine how benchmark-relative underperformance influences subsequent portfolio adjustments. The findings indicate that underperforming fund managers increase both volatility and portfolio concentration in an effort to improve performance relative to their peers. Additionally, sustainability scores tend to rise following underperformance, suggesting that ESG characteristics may serve as a strategic lever to attract and retain investors through reputation or signaling. Conversely, active share decreases following underperformance, challenging the hypothesis that underperformance leads to greater deviation from benchmark holdings. By expanding the set of portfolio characteristics, extending the length of the tournament, and adopting a benchmark-relative measure of performance, the paper offers a more nuanced view of fund manager behavior under tournament incentives. This paper argues that the strategic responses to underperformance can increase complexity, requiring investors to monitor fund behavior more closely. For fund managers, the findings highlight the tension between competitiveness and maintaining transparency.