Seasonality and idiosyncratic risk in mutual fund performance

Javier Vidal-García and Marta Vidal

European Journal of Operational Research, 2014, vol. 233, issue 3, 613-624

Abstract: This paper examines the relationship between seasonality, idiosyncratic risk and mutual fund returns using multifactor models. We use a large sample containing the return histories of 728 UK mutual funds over a 23-year period to measure fund performance. We present evidence that idiosyncratic risk cannot be eliminated, we also find evidence of seasonality in all fund categories. Specifically, we find a close relation between the seasonality and the end of the tax-year. We document that the idiosyncratic risk puzzle cannot explain seasonality in fund performance in the UK. Although, we do find that idiosyncratic risk can account for the seasonality in the month of April. Thus, the results show a link between the tax-loss selling hypothesis in April and idiosyncratic risk in that month. Finally, we report evidence that idiosyncratic risk is negatively related to expected returns for most fund classes.

Keywords: Mutual fund performance; Seasonality; Idiosyncratic risk; Tax-loss selling (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:233:y:2014:i:3:p:613-624

DOI: 10.1016/j.ejor.2013.09.011

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