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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26578
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| Title: | Does Mutual Fund Performance Vary over the Business Cycle? |
| Authors: | Lynch, Anthony W.
Wachter, Jessica
Boudry, Walter |
| Issue Date: | 1-Jan-2003 |
| Series/Report no.: | FIN-03-005 |
| Abstract: | Conditional factor models allow both risk loadings and performance over
a period to be a func- tion of information available at the start of the
period. Much of the literature to date has allowed risk loadings to be
time-varying while imposing the assumption that conditional performance
is constant. We develop a new methodology that allows conditional
performance to be a function of information available at the start of
the period. This methodology uses the Euler equation restriction that
comes out of the factor model rather than the beta pricing formula
itself. The Euler equation restrictions that we develop can be estimated
using GMM. It is also possible to allow the factor returns to have
longer data series than the mutual fund series as in Stambaugh (1997).
We use our method to assess the conditional performance of funds in the
Elton, Gruber and Blake (1996) mutual fund data set. Using dividend
yield to track the business cycle, we nd that conditional mutual fund
performance moves with the business cycle, with all fund types except
growth performing better in downturns than in peaks. The converse holds
for growth funds, which do better in peaks than in downturns. |
| URI: | http://hdl.handle.net/2451/26578 |
| Appears in Collections: | Finance Working Papers
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