Factor exposure variation and mutual fund performance

Arbeitspapier

We investigate the relationship between a mutual fund's variation in factor exposures and its future performance. Using a dynamic state space version of Carhart (1997)'s four factor model to capture factor variation, we find that funds with volatile factor exposures underperform funds with stable factor exposures by 147 basis points p.a. This underperformance is neither explained by volatile factor loadings of a fund's equity holdings nor driven by a fund's forced trading through investor flows. We conclude that fund managers voluntarily attempt to time factors, but they are unsuccessful at doing so.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFR Working Paper ; No. 20-06

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Information and Market Efficiency; Event Studies; Insider Trading ; Financial Institutions and Services: General ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
• Subject: Mutual Fund ; Market Timing ; Factor Timing ; Factor Exposure ; Kalman Filter ; Underperformance

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ammann, Manuel ; Fischer, Sebastian ; Weigert, Florian
• Event: Veröffentlichung
• (who): University of Cologne, Centre for Financial Research (CFR)
• (where): Cologne
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/223419
• Last update: 10.03.2025, 11:42 AM CET