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Abstract
We examine how mutual fund ability varies across up and down market conditions by exploring the Upside and Downside Capture Ratios. We find convincing evidence that Capture Ratios persist and successfully identify mutual funds that subsequently outperform in their respective market conditions. We show that mutual funds that possess the ability to both outperform in up markets and reduce losses in down markets significantly outperform over the subsequent year, and we further show that mutual fund investors utilize Capture Ratios when allocating money to mutual funds. Our findings provide evidence that Capture Ratios provide valuable information to investors, and that investors take this information into account when making mutual fund allocation decisions.
TOPICS: Mutual funds/passive investing/indexing, mutual fund performance
Key Findings
• Capture Ratios provide information about fund performance in up and down markets.
• A set of identified funds continue to outperform in both up and down markets.
• Investors respond strongly to Capture Ratios demonstrated through fund flows.
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Don’t have access? Click here to request a demo
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US and Overseas: +1 646-931-9045
UK: 0207 139 1600