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The performance of asset allocation mutual funds
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Date
2024-10-14
Authors
Yin, Zhengnan
O’Sullivan, Niall
Sherman, Meadhbh
Journal Title
Journal ISSN
Volume Title
Publisher
Springer Nature
Published Version
Abstract
We analyze the performance of asset allocation funds using a best-fit multifactor model that includes both stock and bond market factors. Utilizing large samples of allocation funds from both the US and the UK, we find that, on average, asset allocation funds do not outperform their benchmarks, and there is little or weak evidence of performance persistence when examining both decile portfolios and small-size portfolios. However, asset allocation funds still demonstrate superior abilities. At the individual fund level, some funds exhibit significant positive alphas, stock market timing, and bond market timing in both the US and UK markets. Furthermore, we find that US allocation funds with low past maximum drawdowns (MDDs) outperform those with high past MDDs during periods of high stock market returns and high stock market volatility. In contrast, UK allocation funds with low past MDDs outperform those with high MDDs when bond market returns are high.
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Keywords
Asset allocation fund , Fund performance , Market timing , Maximum drawdown , Performance persistence , Bootstrap
Citation
Yin, Z., O’Sullivan, N. and Sherman, M. (2024) 'The performance of asset allocation mutual funds', Financial Markets and Portfolio Management, 38, pp. 465-514. https://doi.org/10.1007/s11408-024-00457-2
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© 2024, the Authors under exclusive licence to Swiss Society for Financial Market Research. This is a post-peer-review, pre-copyedit version of an article published in Financial Markets and Portfolio Management. The final authenticated version is available online at: https://doi.org/10.1007/s11408-024-00457-2