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The relationship between risk-adjusted performance of actively managed mutual funds investing in European equities and macroeconomic fear factors
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School of Business |
Master's thesis
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en
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84
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I find a significant relationship between a current level of some well-known macroeconomic fear factors which measure the prevailing economic or investor sentiment and subsequent equity mutual fund performance and stock market returns in European markets. When the level of macroeconomic fear in the beginning of a three or five-year measurement period is relatively high, the future stock market returns and mutual fund performance is expected to be relatively higher as well and vice versa. However, the results depend on a given macroeconomic fear factor, serial correlation adjustment procedure, time period and a risk-adjustment method with respect to mutual fund performance. This finding supports and complements previous results regarding the time-varying nature of mutual fund alpha presented for example by Kosowski (2011). This study also contributes to understanding how the new multi-factor composite sentiment indexes developed by Baker and Wurgler (2006) and Huang, Jiang, Tu and Zhou (2015) are linked to future equity mutual fund performance in Europe.