Journal of Banking & Finance Vol. 35 No. 7 2011
On the characteristics and performance of long-short, market-neutral and bear mutual funds
Abstract
We evaluate the return performance of long-short, market-neutral and bear mutual funds using multi-factor models and a conditional CAPM that allows for time-varying risk. Differences in the bearish posture of these mutual funds result in different performance characteristics. Returns to long-short mutual funds vary with the market, returns to market-neutral mutual funds are uncorrelated with the market and returns to bear mutual funds are negatively correlated. Using the conditional CAPM we document significant changes in the market-risk exposure of the most bearish of these funds during different economic climates. We then assess the flow-performance relationship for up to 60months following up and down markets and find that investors direct flows towards market-neutral and bearish funds for several months after down markets. Market-neutral funds provide a down market hedge, but bear funds do not generate the returns that investors hope for.
- DOI
- 10.1016/j.jbankfin.2010.12.005
- Volume
- 35
- Issue
- 7
- Pages
- 1762-1776
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib