Factor Exposure Variation and Mutual Fund Performance
Journal
Financial Analysts Journal
ISSN
0015-198X
Type
forthcoming
Date Issued
2020
Author(s)
Abstract
We investigated the relationship between a mutual fund’s variation in factor exposures and its future performance. Using a dynamic state-space version of the Carhart (1997) four-factor model to capture factor variations, we found that funds with volatile factor exposures underperform funds with stable factor exposures by 147 bps a year. This underperformance is explained neither by volatile factor loadings of a fund’s equity holdings nor by a fund’s forced trading through investor flows. We conclude that fund managers voluntarily attempt to time factors but are unsuccessful at doing so.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
None
Refereed
Yes
Publisher
CFA Institute
Volume
76
Number
4
Start page
101
End page
118
Official URL
Subject(s)
Eprints ID
261068