Ability to Capture Up Market Gains and Avoid Down Market Losses: The Upside and Downside Capture Ratios

Posted: 9 Sep 2016 Last revised: 17 Sep 2019

See all articles by Tim Marlo

Tim Marlo

Southern Illinois University - Department of Finance

Jeffrey Stark

Middle Tennessee State University

Date Written: October 15, 2016

Abstract

We examine the Upside and Downside Capture Ratios, which distinguish between mutual funds that better capture returns in up markets and better reduce losses in down markets. We find strong evidence that the Upside Capture Ratio successfully identifies mutual funds that subsequently outperform in up markets even after controlling for systematic risk exposure. We further find evidence that mutual fund flows are strongly associated with both Upside and Downside Capture Ratios. This relationship indicates that investors utilize Capture Ratios to engage in a form of market timing through their mutual fund allocation decisions.

Keywords: Mutual Funds, Performance, Flows, Morningstar Capture Ratios

JEL Classification: G10, G11, G20, G23

Suggested Citation

Marlo, Tim and Stark, Jeffrey, Ability to Capture Up Market Gains and Avoid Down Market Losses: The Upside and Downside Capture Ratios (October 15, 2016). Available at SSRN: https://ssrn.com/abstract=2836451 or http://dx.doi.org/10.2139/ssrn.2836451

Tim Marlo

Southern Illinois University - Department of Finance ( email )

Mail Code 4626
Carbondale, IL 62901-4626
United States

Jeffrey Stark (Contact Author)

Middle Tennessee State University ( email )

Murfreesboro, TN
United States

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