Title: Dynamic risk-taking behavior of mutual funds
Authors: Huyen Nguyen - Le Mans University (France) [presenting]
Abstract: The aim is to study the dynamics of risk exposures of different strategies of US domestic equity mutual funds (DEMF) as a group over the business cycle. Following previous works, we apply the Kalman filter to estimate the time-varying exposures of 6 DEMF indexes to various sources of risk over the period 1994-2015. The results show that for all strategies, risk coefficients vary strongly over time, indicating that these DEMF portfolios are actively managed and not simply buy-and-hold ones. In terms of market risk, different DEMF strategies display quite different betas before 2000 but their betas become more or more similar after. Since 2008, all DEMF strategies concomitantly reduce market risk in a significant proportion, certainly due to the fly-to-quality pressure. This finding implies a reduced diversification benefit for mutual funds investors and a serious potential threat of instability for the financial system during market turbulences.