Unmasking Mutual Fund Derivative Use

70 Pages Posted: 15 Sep 2020 Last revised: 20 Feb 2024

See all articles by Ron Kaniel

Ron Kaniel

University of Rochester - Simon Business School; CEPR

Pingle Wang

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance

Date Written: October 3, 2022

Abstract

Using new SEC data, we study fund derivative use and its impact on performance. Despite small portfolio weights, derivatives contribute largely to fund returns. Contrary to prior research, we find most employ derivatives to amplify, not hedge, equity returns. Using machine learning to classify funds' derivative strategies reveals high specializations linked to information-related trading, liquidity management, gaining exposure, or hedging motives. Long index derivative users drive the amplification. During the COVID-19 crisis, they significantly increased derivative use more than others and shifted strategies, but initially lost on existing positions and then on newly opened short positions when markets unexpectedly rebounded.

Keywords: COVID-19, Derivatives, Mutual Funds

JEL Classification: G01, G11, G12, G14, G23

Suggested Citation

Kaniel, Ron and Wang, Pingle, Unmasking Mutual Fund Derivative Use (October 3, 2022). Available at SSRN: https://ssrn.com/abstract=3692838 or http://dx.doi.org/10.2139/ssrn.3692838

Ron Kaniel

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

HOME PAGE: http://rkaniel.simon.rochester.edu

CEPR ( email )

London
United Kingdom

Pingle Wang (Contact Author)

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance ( email )

800 West Campbell
Richarson, TX 75080
United States

HOME PAGE: http://www.wangpingle.com

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
832
Abstract Views
3,813
PlumX Metrics