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Downward pressure, investment style and performance persistence of institutional investors

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  • Sha, Yezhou
  • Wu, Xi

Abstract

This paper explores the capacity of time-varying investment styles to safeguard investors in a capital market burdened by substantial downside risk. Utilizing Covid-19 as a quasi-natural experiment, we deploy the Event Study methodology to scrutinize the effect of pronounced external downside risk on mutual fund performance. Our findings reveal that downward pressure initially exerts a significant negative influence, which attenuates as public apprehension recedes. Subsequent analyses employing Difference-in-Differences and Propensity Score Matching methods demonstrate that style drift serves to mitigate the adverse impact of downward pressure on fund performance. Notably, active style drift positively influences fund performance as it manifested by net fund inflows and the stock selection prowess of fund managers.

Suggested Citation

  • Sha, Yezhou & Wu, Xi, 2024. "Downward pressure, investment style and performance persistence of institutional investors," International Review of Economics & Finance, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:reveco:v:95:y:2024:i:c:s1059056024004581
    DOI: 10.1016/j.iref.2024.103466
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    More about this item

    Keywords

    Downward pressure; Investment style; Mutual funds;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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