Shedding light on the exposure of mutual funds: Which investments drive mutual fund characteristics?

Lukas Benz (), Martin Rohleder, Janik Syryca and Marco Wilkens
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Lukas Benz: University of Augsburg
Martin Rohleder: University of Augsburg
Janik Syryca: University of Augsburg
Marco Wilkens: University of Augsburg

Journal of Asset Management, 2019, vol. 20, issue 7, No 3, 534-551

Abstract: Abstract This paper is the first to identify and classify nearly all investment instruments held by equity funds by investigating their portfolio holdings. This enables us to analyze the effects of long and short exposures from different complex instruments including short sales, options and futures but also previously neglected derivatives like warrants and units on funds’ risk, performance and other characteristics. These analyses are of general interest, especially in the light of ongoing discussions regarding further regulation of complex instrument use by mutual funds. Our empirical analyses document that on average more than 40% of funds use complex instruments. However, relative to their total assets, funds’ average exposure from such positions is very small with values below 2%. Consequentially, the effects of instruments are often weaker than suggested by previous research or even show opposite directions.

Keywords: Equity mutual funds; Risk; Performance; Derivatives; Complex investments; Holdings (search for similar items in EconPapers)
JEL-codes: G11 G20 G23 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1057/s41260-019-00144-2

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