Delegated Portfolio Management and Risk-Taking Behavior Articles uri icon

publication date

  • June 2010

start page

  • 353

end page

  • 372


  • 4


  • 16

International Standard Serial Number (ISSN)

  • 1351-847X

Electronic International Standard Serial Number (EISSN)

  • 1466-4364


  • Standard models of moral hazard predict a negative relationship between risk and incentives; however empirical studies on mutual funds present mixed results. In this paper, we propose a behavioral principal-agent
    model in the context of professional managers, focusing on active and
    passive investment strategies. Using this general framework, we evaluate
    how incentives affect the risk taking behavior of managers, using the
    standard moral hazard model as a special case; and solve the previous
    contradiction. Empirical evidence, based on a comprehensive world sample
    of 4584 mutual funds, gives support to our theoretical model.