Fund Performance and Risk Shifting : Evidence from Bank-Affiliated Mutual Funds in China

Using open-end stock mutual fund data from China during 2005 to 2020, this study findsthat bank-affiliated funds outperform unaffiliated funds despite both having similar levels of riskshifting. We find that the risk shifting of bank-affiliated fund managers is more sensitive toprevious fund performance ranking. We also find, using the compensation data of 62 fundcompanies, that the risk-shifting behaviour of fund managers is related to their performanceincentives. Furthermore, our findings suggest that skilled bank-affiliated fund managers are proneto increasing portfolio risk shifting to pursue fund future performance