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On Mutual Fund Family Diversification, Performance, Persistence and Flows

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Date Issued:
2017
Abstract/Description:
The first essay introduces a portfolio theory motivated approach to measuring mutual fund family-level diversification and hedging strategies. Diversification of idiosyncratic risk (systematic risk) is measured by the average cross-fund correlation in idiosyncratic returns (predicted returns from the multifactor model). Using new methodology, I find evidence of cross-sectional variation in family-level diversification and examine several fund families’ characteristics as the determinants of this crosssectional variation. On average, fund families that offer more objectives are more diversified in terms of both idiosyncratic and systematic risks; however, in the subsample of larger fund families, greater number of objectives is associated with increase (decrease) in idiosyncratic (systematic) risk diversification. Families that concentrate in the retail sector are more diversified. I also find that less diversification of idiosyncratic risk on the family level is associated with better risk-adjusted performance, while greater diversification of systematic risk is associated with greater performance during an economic downturn. The second essay examines whether new measures of diversification are additional determinants of fund family flows and flow volatility. I find that fund family capital flows increase in systematic risk focus, as more of the fund family’s assets are held by institutional investors. Family flow volatility decreases in diversification of systematic risk during market downturn, increase in market uncertainty and during recession. I further find that families with greater concentration in the retail sector (institutional sector) exhibit less family capital flow volatility as the diversification of systematic risk (idiosyncratic risk) increases. Fund-level volatility of focused and concentrated funds within diversified families is greater than in less diversified families, signaling that diversification on the family level may decrease participation costs for the investors. Moreover, in support of participation cost hypothesis, I find that the performance of worst performing funds within fund families increases in the family-level diversification; thus, family-level diversification affects the convexity in the fund flowperformance relation documented in the previous studies. On the family-level, diversification is associated with convexity in flow-performance relation, while family focus with more direct flow-performance relation.
Title: On Mutual Fund Family Diversification, Performance, Persistence and Flows.
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Name(s): Kaprielyan, Margarita, author
Agapova, Anna, Thesis advisor
Florida Atlantic University, Degree grantor
College of Business
Department of Finance
Type of Resource: text
Genre: Electronic Thesis Or Dissertation
Date Created: 2017
Date Issued: 2017
Publisher: Florida Atlantic University
Place of Publication: Boca Raton, Fla.
Physical Form: application/pdf
Extent: 228 p.
Language(s): English
Abstract/Description: The first essay introduces a portfolio theory motivated approach to measuring mutual fund family-level diversification and hedging strategies. Diversification of idiosyncratic risk (systematic risk) is measured by the average cross-fund correlation in idiosyncratic returns (predicted returns from the multifactor model). Using new methodology, I find evidence of cross-sectional variation in family-level diversification and examine several fund families’ characteristics as the determinants of this crosssectional variation. On average, fund families that offer more objectives are more diversified in terms of both idiosyncratic and systematic risks; however, in the subsample of larger fund families, greater number of objectives is associated with increase (decrease) in idiosyncratic (systematic) risk diversification. Families that concentrate in the retail sector are more diversified. I also find that less diversification of idiosyncratic risk on the family level is associated with better risk-adjusted performance, while greater diversification of systematic risk is associated with greater performance during an economic downturn. The second essay examines whether new measures of diversification are additional determinants of fund family flows and flow volatility. I find that fund family capital flows increase in systematic risk focus, as more of the fund family’s assets are held by institutional investors. Family flow volatility decreases in diversification of systematic risk during market downturn, increase in market uncertainty and during recession. I further find that families with greater concentration in the retail sector (institutional sector) exhibit less family capital flow volatility as the diversification of systematic risk (idiosyncratic risk) increases. Fund-level volatility of focused and concentrated funds within diversified families is greater than in less diversified families, signaling that diversification on the family level may decrease participation costs for the investors. Moreover, in support of participation cost hypothesis, I find that the performance of worst performing funds within fund families increases in the family-level diversification; thus, family-level diversification affects the convexity in the fund flowperformance relation documented in the previous studies. On the family-level, diversification is associated with convexity in flow-performance relation, while family focus with more direct flow-performance relation.
Identifier: FA00004980 (IID)
Degree granted: Dissertation (Ph.D.)--Florida Atlantic University, 2017.
Collection: FAU Electronic Theses and Dissertations Collection
Note(s): Includes bibliography.
Subject(s): Dissertations, Academic -- Florida Atlantic University
Held by: Florida Atlantic University Libraries
Sublocation: Digital Library
Links: http://purl.flvc.org/fau/fd/FA00004990
Use and Reproduction: Copyright © is held by the author, with permission granted to Florida Atlantic University to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.
Use and Reproduction: http://rightsstatements.org/vocab/InC/1.0/
Host Institution: FAU
Is Part of Series: Florida Atlantic University Digital Library Collections.