Low-Beta Investing with Mutual Funds

23 Pages Posted: 5 Sep 2012 Last revised: 9 Apr 2015

David Nanigian

California State University, Fullerton - Department of Finance

Date Written: October 24, 2014

Abstract

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 puzzle. I find that one investing in a portfolio of funds in the top quintile of beta can improve her alpha by a statistically significant 2.9% to 4.9% a year, depending on the asset pricing model specification, by holding a portfolio of funds in the bottom quintile of beta instead.

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

JEL Classification: G11, G12, G23

Suggested Citation

Nanigian, David, Low-Beta Investing with Mutual Funds (October 24, 2014). Financial Services Review, 23(4) (Winter 2014), 361–383. Available at SSRN: https://ssrn.com/abstract=2141460 or http://dx.doi.org/10.2139/ssrn.2141460

David Nanigian (Contact Author)

California State University, Fullerton - Department of Finance ( email )

PO Box 34080
Fullerton, CA 92834-9480
United States

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