Fund Convexity and Tail Risk-Taking

@inproceedings{LinFundCA,
  title={Fund Convexity and Tail Risk-Taking},
  author={J. Lin}
}
This paper studies how a fund manager takes skewed bets in two dimensions. First, the fund manager constantly reexamines fund performance relative to his or her peers and takes a position with respect to skewness risk. I show that when a fund manager underperforms peers, he or she will gamble on trades with lottery-like returns. On the other hand, when a fund outperforms peer funds, the fund manager will take negatively skewed trades to improve performance at the expense of significant downside… CONTINUE READING

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