Abstract: In this paper,in order to theoretically study the effect of relative performance on the risk-taking be-havior of mutual funds,we view the mutual fund market as a series of tournaments and develop a game model.In the model,two funds with unequal midyear performances compete for new cash inflows,accordingly for more compensation at the end of year,when the tournament is ended.Contrary to people’s institution,we find that the fund with better midyear performance is more likely to choose a higher level of risk of protfolio than the fund with worse midyear performance.Moreover,the higher the midyear performance gap is,or the higher the risk as-set’s return or the lower risk asset’s volatility is,the larger the probability of choosing a higher level of risk of protfolio by the fund with better midyear performance;accordingly,the lower the probability of choosing a higher level of risk of protfolio by the fund with worse midyear performance.At last,according to the principle of game and the theory of behavior finance,we explain the results.

Key words: mutual fund, tournament, relative performance, risk-taking bethavior