Beta reversal and expected security returns.
- Resource Type
- Theses
- Authors
- Zhao, Yihua
- Source
- Dissertation Abstracts International; Dissertation Abstract International; 74-12A(E).
- Subject
- Economics, Finance
- Language
- English
Summary: The second part investigates whether or not the under-performance of actively managed mutual funds is attributed to these funds' investment preferences toward stocks with high idiosyncratic volatility. It finds that these funds prefer to hold stocks with higher idiosyncratic volatility. Their portfolios, however, remain exposed to higher undiversified idiosyncratic volatility. The level of undiversification is proportional to these portfolios' aggregate idiosyncratic volatility. Undiversified idiosyncratic volatility has a significantly negative effect on the funds' performance. I conclude that the under-performance of actively managed mutual funds results from fund managers' self-interested actions: gambling to speculate the extremely abnormal return in financial markets and conducting window dressing to improve the appearance of quarterly reports.