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On the characteristics and performance of long-short, market-neutral and bear mutual funds

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  • Badrinath, S.G.
  • Gubellini, S.
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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 60Â 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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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 35 (2011)
    Issue (Month): 7 (July)
    Pages: 1762-1776

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    Handle: RePEc:eee:jbfina:v:35:y:2011:i:7:p:1762-1776

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Mutual funds Conditional performance evaluation Long-short funds Market-neutral funds Bear funds;

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