Tournaments in Mutual-Fund Families

The mutual fund industry resembles a tournament situation. Funds change their risk in dependence of their midyear performance in order to reach a top rank at the end of the year. Previous studies look at the competition in fund segments. They test the hypothesis that interim losers increase risk more than winners in order to benefit from the well-documented convex performance-inflow relationship (see, e.g., Brown, Harlow, and Starks (1996) (BHS)). We contribute to the literature in two ways: (1) Our paper is the first to analyze the question whether fund managers only engage in a segment tournament or if there is also a competition between mutual funds within their fund families. Thereby we complement to the growing literature on mutual fund families. (2) We analyze for the first time, whether the behavior of funds within their segment and within their family depends on the competitive situation the