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Mutual Funds Dynamics and Economic Predictors

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Listed:
  • Gianni Amisano
  • Roberto Savona

Abstract

Suppose a fund manager uses predictors in changing portfolio allocations over time. How does predictability translate into portfolio decisions? To answer this question, we derive a new Bayesian time-varying CAPM-based beta model, where managers modulate the systematic risk in part by observing how the benchmark returns are related to some set of imperfect predictors, and in part reflecting their own information set. Based on single and equally weighted portfolios of U.S. domestic equity mutual funds over the 1990–2014 period, we estimate our model providing new evidence on mutual fund dynamics: (1) beta dynamics are significantly affected by economic variables, although (2) managers seem not to care about benchmark sensitivities toward predictors in choosing their instrument exposure; and (3) instruments play a key role on the long run.

Suggested Citation

  • Gianni Amisano & Roberto Savona, 2017. "Mutual Funds Dynamics and Economic Predictors," Journal of Financial Econometrics, Oxford University Press, vol. 15(2), pages 302-330.
    • Handle: RePEc:oup:jfinec:v:15:y:2017:i:2:p:302-330.
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbx001
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    Citations

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    Cited by:

    1. Lambert, Marie & Platania, Federico, 2020. "The macroeconomic drivers in hedge fund beta management," Economic Modelling, Elsevier, vol. 91(C), pages 65-80.
    2. Dragomirescu-Gaina, Catalin & Philippas, Dionisis & Tsionas, Mike G., 2021. "Trading off accuracy for speed: Hedge funds' decision-making under uncertainty," International Review of Financial Analysis, Elsevier, vol. 75(C).

    More about this item

    Keywords

    Bayesian analysis; conditional asset pricing models; equity mutual funds; structural VARs; time-varying beta;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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