On the characteristics and performance of long-short, market-neutral and bear mutual funds |
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Authors: | SG Badrinath S Gubellini |
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Institution: | Department of Finance, San Diego State University, San Diego, United States |
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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 60 months 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. |
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Keywords: | G10 G11 G23 |
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