Mutual Fund Tournaments and Structural Changes in an Emerging Fund Market: The Case of Korea

Abstract

The objective of this study is to evaluate the mutual fund tournament,

i.e., an agency issue between fund managers and investors, in the presence

of structural changes in an emerging fund market. This study extends

BHS (1996), Busse (2001), and Kempf and Ruenzi (2008b). A switching

regression model is employed to investigate the effects of structural changes

on the mutual fund tournament. We find that structural changes in the

Korean fund market alter the tournament type from a segment to a family

tournament. We believe that the family tournament comes from more

competition since 2005 within large families. Our evidence of tournaments

is robust to return frequency. Our results indicate that regulators and

fund families should exercise greater caution than is currently the case to

prevent conflicts of interests between fund investors and managers.