They found that rankings and tournament incentives increase risk-taking among underperforming professionals, but not among students. One reason could be that professionals know that following a low-risk strategy does not increase the likelihood of a fund achieving high rankings, while a high-risk strategy makes more sense under these conditions. This behavior supports the persistence of the low-risk anomaly.
The paper is also of particular interest since most other empirical studies are based on samples of students, who might not be representative for professional investors. Many experiments involving students may underestimate the behavioral impact of incentives.
*‘Rankings and Risk-Taking in the Finance Industry’, Michael Kirchler, Florian Lindner and Utz Weitze, 2017.
Robeco Institutional Asset Management B.V. (DIFC Branch) is regulated by the Dubai Financial Services Authority (“DFSA”) and only deals with Professional Clients and Market Counterparties, and does not deal with Retail Clients as defined by the DFSA.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.