On the Demand for High-Beta Stocks

Résumé du livre

Prior studies have documented that pension plan sponsors rigorously monitor a fund's performance relative to a benchmark. We use a first-difference approach to show that in an effort to beat benchmarks, fund managers controlling large pension assets tend to increase their exposure to high-beta stocks while at the same time aiming to maintain tracking error around the benchmark. The findings support theoretical conjectures that benchmarking leads managers to tilt their portfolio towards high-beta, negative-alpha stocks and away from low-beta, positive-alpha stocks, reinforcing observed pricing anomalies. Managerial risk-taking responses to benchmarking pressures can complicate financial planning for investors.