The rewards received by financial managers depend on both relative performance (e.g., fund inflows based on fund rankings, promotions based on peer comparisons) and absolute performance (e.g., bonus payments for meeting accounting targets, hedge-fund incentive fees). Both relative and absolute performance rewards engender risk-taking. In this paper, we show that these two sources of risk-taking, relative and absolute performance rewards, mitigate the risk-taking incentives produced by the other. This mutual incentive-reduction effect generates a number of novel predictions about the relationship of managerial risk-taking with the structure of relative and absolute performance rewards.
- Ph.D., University of Oxford, 2020
- M.Sc., University of Oxford, 2015
- B.S., Fudan University, 2014
Dr. Dunhong Jin joined The University of Hong Kong as Assistant Professor of Finance in 2020. She received her Ph.D. in finance from University of Oxford. She obtained her M.Sc. in mathematical finance from University of Oxford, and her B.S. in mathematics from Fudan University.
She is a theoretical financial economist, working on information, incentive and contract in asset management, corporate finance and asset pricing. She also has several joint projects with the Financial Conduct Authority on liquidity mismatch and financial stability in asset management industry.
- Asset Management
- Corporate Finance
- Asset Pricing
- Security Design
- “Swing Pricing and Fragility in Open-End Mutual Funds,” (with Marcin Kacperczyk, Bige Kahraman, and Felix Suntheim), The Review of Financial Studies, 2022, 35(1), 1-50 (Editor’s Choice).
- “The Golden Mean: The Risk Mitigating Effect of Combining Tournament Rewards with High-Powered Incentives,” (with Thomas Noe), Journal of Finance, 2022, 77(5), 2907-2947.
How can fragility be averted in open-end mutual funds? In recent years, markets have observed an innovation that changed the way open-end funds are priced. Alternative pricing rules (known as swing pricing) adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders. Using unique data on investor-level transactions in U.K. corporate bond funds, we show that swing pricing eliminates the first-mover advantage arising from the traditional pricing rule and significantly reduces outflows during market stress. Swing pricing also reduces concavity in the flow-performance relationship and dilution in fund performance.