Mutual Funds Dynamics and Economic Predictors

Gianni Amisano and Roberto Savona

Journal of Financial Econometrics, 2017, vol. 15, issue 2, 302-330

Abstract: Suppose a fund manager uses predictors in changing portfolio allocations over time. How does predictability translate into portfolio decisions? To answer this question, we derive a new Bayesian time-varying CAPM-based beta model, where managers modulate the systematic risk in part by observing how the benchmark returns are related to some set of imperfect predictors, and in part reflecting their own information set. Based on single and equally weighted portfolios of U.S. domestic equity mutual funds over the 1990–2014 period, we estimate our model providing new evidence on mutual fund dynamics: (1) beta dynamics are significantly affected by economic variables, although (2) managers seem not to care about benchmark sensitivities toward predictors in choosing their instrument exposure; and (3) instruments play a key role on the long run.

Keywords: Bayesian analysis; conditional asset pricing models; equity mutual funds; structural VARs; time-varying beta (search for similar items in EconPapers)
JEL-codes: C11 C13 G12 G13 (search for similar items in EconPapers)
Date: 2017
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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