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Derivatives Use And Risk Taking: Evidence From Alternative Mutual Funds, Alyse Mcalpine
Derivatives Use And Risk Taking: Evidence From Alternative Mutual Funds, Alyse Mcalpine
Financial Analyst
I provide new empirical evidence on the effect of derivatives usage on the risk and performance of a group of mutual funds mimicking hedge fund strategies, namely alternative mutual funds (AMFs). Using data on a sample of 914 AMFs from Morningstar during 2002-2017, I show that while the use of derivatives does impact the performance of AMFs, it significantly increases AMFs’ total and idiosyncratic volatilities, even after we control for various fund characteristics. This positive relation between the use of derivatives and the risk-taking of AMFs is particularly strong during the crisis period, and Bear Market, Long-Short Credit, Managed Futures, …
The Use Of Derivatives By Corporate Bond Mutual Funds, Emily Scofield
The Use Of Derivatives By Corporate Bond Mutual Funds, Emily Scofield
Financial Analyst
This paper examines the use of derivatives by corporate bond mutual funds. Using a sample of 1,657 U.S. corporate bond funds from Morningstar during 2002-2018, I document a significant positive relation between the use of derivatives and corporate bond fund performance, even after controlling various fund characteristics. This relation is mainly driven by investment grade funds, but not high yield funds. Finally, while the positive relation holds for non-crisis periods, the use of derivatives appears to be negatively related to corporate bond fund performance during the crisis period. Overall, the results show that corporate bond funds that use derivatives significantly …