Capitalizing on the Greatest Anomaly in Finance with Mutual Funds

David Nanigian

The American College

December 27, 2013

Contrary to the predictions of CAPM, empirical research has shown that investing in low-beta stocks can improve the mean-variance efficiency of an investor’s portfolio. Through forming portfolios of mutual funds based on beta, I examine whether or not mutual fund investors can capitalize on this anomaly. I find that one investing in a portfolio of funds in the top quintile of beta can improve her excess returns by an average of 3.13% a year without increasing risk by holding a levered position in a portfolio of funds in the bottom quintile instead.

Number of Pages in PDF File: 46

Keywords: Mutual fund performance, low risk stocks, CAPM, market anomalies

JEL Classification: G11, G12, G23

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Date posted: September 5, 2012 ; Last revised: December 28, 2013

Suggested Citation

Nanigian, David, Capitalizing on the Greatest Anomaly in Finance with Mutual Funds (December 27, 2013). Available at SSRN: http://ssrn.com/abstract=2141460 or http://dx.doi.org/10.2139/ssrn.2141460

Contact Information

David Nanigian (Contact Author)
The American College ( email )
270 South Bryn Mawr Avenue
Bryn Mawr, PA 19010
United States
610-526-1324 (Phone)
610-516-1359 (Fax)
HOME PAGE: http://www.theamericancollege.edu/why-us/faculty/david-nanigian-ph.d
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