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Macroeconomic Forces and Mutual Fund Betas
Author(s) -
Lockwood Larry J.
Publication year - 1996
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1996.tb00895.x
Subject(s) - economics , mutual fund , financial economics , monetary economics , business , finance
This paper develops and tests a model in which fund betas are linearly related to changes in macroeconomic factors. Tests using monthly returns for 171 mutual funds over 1978–1991 were run. Results indicate that equity funds betas, on average, are negatively related to inflation changes and default risk premia while bond fund betas, on average, are negatively related to changes in risk‐free rates, industrial production growth, and the term structure. Betas for passive portfolios, however, are not related to the macroeconomic factors examined.