Downward pressure, investment style and performance persistence of institutional investors

Yezhou Sha and Xi Wu

International Review of Economics & Finance, 2024, vol. 95, issue C

Abstract: This paper explores the capacity of time-varying investment styles to safeguard investors in a capital market burdened by substantial downside risk. Utilizing Covid-19 as a quasi-natural experiment, we deploy the Event Study methodology to scrutinize the effect of pronounced external downside risk on mutual fund performance. Our findings reveal that downward pressure initially exerts a significant negative influence, which attenuates as public apprehension recedes. Subsequent analyses employing Difference-in-Differences and Propensity Score Matching methods demonstrate that style drift serves to mitigate the adverse impact of downward pressure on fund performance. Notably, active style drift positively influences fund performance as it manifested by net fund inflows and the stock selection prowess of fund managers.

Keywords: Downward pressure; Investment style; Mutual funds (search for similar items in EconPapers)
JEL-codes: G12 G14 I18 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:95:y:2024:i:c:s1059056024004581

DOI: 10.1016/j.iref.2024.103466

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