eThesis - Kauppakorkeakoulun sähköiset gradut

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The first objective of this thesis is to reveal if equity funds with certain characteristics (e.g. large asset size, high fees) commit to certain type of risk-taking behavior in the Finnish fund market. Fund volatility is employed to measure funds’ risk-taking behavior, and a marketadjusted volatility ratio is introduced in order to commensurate volatility levels of funds operating in different markets.

The second objective is to assess if equity funds’ membership in a retail bank-backed fund family affects funds’ risk-taking behavior (family fund) in a way that their behavior differs from the risk-taking of funds with no retail bank background (non-family fund). Also, the goal is to find out if riskier or less risky funds are clustered into certain fund families.

The thesis uses monthly equity fund data collected from the official Mutual Fund Reports, published by the Federation of Finnish Financial Services. The sample includes all equity funds marketed in Finland and included to the Mutual Fund Reports during the sample period. The aggregate dataset consists of 27,372 monthly observations, covering a period from January 1998 to July 2009. Monthly figures for fund characteristics are collected, and monthly volatility levels for both sample funds and their respective market benchmark indices are gathered. Market indices are MSCI Barra indices, and identical with the official benchmarks used on the Mutual Fund Reports.

The main characteristic related to risk-taking is the size of assets under management (AUM). Smaller funds commit to higher volatility levels both in absolute and market-adjusted terms. Lower subscription fees are charged by funds that favor higher volatility levels, whereas other fund fee types show no statistical relation. Funds having performed worse in previous month commit to higher risk levels during the following month whereas well-performed funds tend to commit to relatively lower risk levels in the following period.

The second main finding states that funds belonging to a fund complex of a Finnish retail bank differ from the funds of non-retail bank funds. Within the nine largest retail bank fund families in Finland, risk is not randomly distributed across families, and low risk funds tend to be concentrated in smaller fund families. The risk concentration in turn can have a major impact on the risk profile of an investor confining her investments to a single fund family.