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Are micro-cap mutual funds indeed riskier?

Author

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  • Javier Rodriguez

Abstract

Purpose - – This study aims to examine the cross-sectional variation in risk of US-based micro-cap open-end mutual funds. Micro-cap mutual funds allow investors to access very low-priced stocks issued by the smallest of companies. The stock of these firms is usually not traded in major exchanges, and their financial information is not readily available and, thus, regarded as risky investments. Design/methodology/approach - – The author examines the cross-sectional variation in risk and higher moments of US-based micro-cap mutual funds in comparison with that of small-cap and mid-cap mutual funds. Total, systematic and idiosyncratic risk metrics, along with higher moments, are estimated before, during and after the 2008 financial crisis. Findings - – The author finds that, indeed, based on total and idiosyncratic risk metrics, the sample of micro-cap funds is riskier than the size-matched samples of small-cap and mid-cap funds. The author also reports that the sample of micro-cap funds fail to generate higher excess returns than the less risky small-cap and mid-cap funds. Originality/value - – To the best of the author’s knowledge, this is the first time that the risk of small-cap mutual funds has been examined.

Suggested Citation

  • Javier Rodriguez, 2015. "Are micro-cap mutual funds indeed riskier?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 14(4), pages 352-362, November.
    • Handle: RePEc:eme:rafpps:v:14:y:2015:i:4:p:352-362
    DOI: 10.1108/RAF-03-2015-0045
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    Citations

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    Cited by:

    1. Dariusz FILIP, 2020. "Are Fund Attributes Risk Drivers? Evidence for the Polish Mutual Funds," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 22-36, March.
    2. Farrukh Naveed & Muhammad Ishfaq & Zahid Maqbool, 2021. "The downside risk of mutual funds: Does the quality of corporate governance matter? Empirical evidence from Pakistan," Journal of Asset Management, Palgrave Macmillan, vol. 22(5), pages 376-388, September.

    More about this item

    Keywords

    Micro-cap mutual funds; Mutual fund risk;

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