Capitalizing on the Greatest Anomaly in Finance with Mutual Funds
The American College
August 13, 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 2.97% 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: 36
Keywords: Mutual fund performance, low risk stocks, CAPM, market anomalies
JEL Classification: G11, G12, G23working papers series
Date posted: September 5, 2012 ; Last revised: August 14, 2013
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