Seasonality and Idiosyncratic Risk in Mutual Fund Performance

Monday, February 4, 2013 ( 2:00 pm to 3:00 pm )

Location: Babbio 104

Seasonality and Idiosyncratic Risk in Mutual Fund Performance

JAVIER VIDAL-GARCÍA, Ph.D., Universidad Complutense de Madrid

 

ABSTRACT

This paper examines the relationship between seasonality, idiosyncratic risk, and mutual fund returns using multifactor models. We use a large sample containing the return histories of 728 UK mutual funds over a 23-year period to measure fund performance. We present evidence that idiosyncratic risk cannot be eliminated; we also find evidence of seasonality in all fund categories. Specifically, we find a close relation between the seasonality and the end of the tax-year. We document that the idiosyncratic risk puzzle cannot explain seasonality in fund performance in the UK. Although, we do find that idiosyncratic risk can account for the seasonality in the month of April. Thus, the results show a link between the tax loss-selling hypothesis in April and idiosyncratic risk in that month. Finally, we report evidence that idiosyncratic risk is negatively related to expected returns for most fund classes.

 

BIOGRAPHY

Javier Vidal-García holds a Ph.D. in Financial Economics (European Doctorate), from the Universidad Complutense de Madrid. He also holds a Master in Development Economics and Public Policy, Universidad Autonóma de Madrid, Master in Auditing and Business Analysis, Universidad Complutense de Madrid, M.Sc. Financial Management, Aston Business School, UK, and B.Sc. Management, Queen’s University Management School, UK. His research interests include:  Portfolio Management; International Finance; Empirical Asset Pricing; Macrofinance; Monetary Economics.

Email Howe.School@stevens.edu for more information