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CAPM and the Duration of Poorly Performing Mutual Funds

Author

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  • Alex Keenan

    (Rutgers)

Abstract

Using duration analysis and CAPM, this paper seeks to estimate the length of time performance measures affect the probability of a mutual fund liquidating. Data was collected on small cap growth funds from 1980-Nov. 2000 using the Sharpe Ratio to estimate the probability that a mutual fund closes due to poor performance. Using a parametric approach the results show that a fund with a lower Sharpe ratio as well as overall strong performance by the market increases the probability of a fund's failure. The results also show the existence of positive duration implying older funds face a higher probability of failure. The results are then compared to other models to test the appropriateness of the model.

Suggested Citation

  • Alex Keenan, 2001. "CAPM and the Duration of Poorly Performing Mutual Funds," Departmental Working Papers 200104, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:200104
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    Keywords

    mutual funds;

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