Premium
Does MAX matter for mutual funds?
Author(s) -
Goldie Bradley A.,
Henry Tyler R.,
Kassa Haimanot
Publication year - 2019
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12192
Subject(s) - mutual fund , closed end fund , portfolio , stock (firearms) , open end fund , fund of funds , econometrics , returns based style analysis , income fund , economics , business , financial economics , passive management , monetary economics , institutional investor , finance , corporate governance , geography , archaeology , market liquidity
Extreme returns (MAX) have been shown to impact future expected stock returns. We examine whether this relationship is present in mutual fund returns. We find that high MAX funds, as measured by past extreme daily returns, underperform both in portfolio sorts and cross‐sectional tests. We further test possible explanations for why MAX funds underperform. First, we measure mutual fund flows to determine investor response to MAX. Second, we examine the underlying holdings of MAX funds to measure their concentration in MAX stocks. We find evidence that both fund flows and holdings contribute to the MAX effect on mutual fund returns.