Risk Shifting and Mutual Fund Performance: A Swedish Perspective

Abstract: This thesis examines the performance consequences of risk shifting in mutual funds on the Swedish market between the years 2000-2011. By constructing a risk shifting measure based on tracking error volatility, we conclude that the funds that increase risk the most have experienced better performance than funds which decrease or keep stable risk levels over the sample period. We also find that funds that engage in risk shifting behavior on average are younger, have less assets under management and charge higher expense rates. We suggest that Swedish fund managers who increase risk the most might have superior stock picking skill and market timing ability to their US colleagues.