What drives the time-varying performance of Japanese mutual funds?

Kin-Yip Ho, Yanlin Shi, Zhaoyong Zhang

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

In this chapter, we review the performance of Japanese mutual funds with the most recent data and examine the time-varying volatility and the leverage effect of Japanese mutual funds over the business cycle by using a Markov Regime-Switching GARCH model. The results suggest that volatility persistence of Japanese mutual funds are generally quite large and vary significantly with their business cycles. Moreover, the significant leverage effects of shocks on volatility are observed, and positive shocks generally have greater positive effects than negative shocks. Also, we find that contemporary news sentiment and flow can reduce a considerable proportion of the volatility persistence. The effects are different, depending on the states of business cycle. Finally, the marginal effects of negative and positive news on volatility are roughly symmetric in both states of business cycle. All the results are robust when mutual funds are modeled within the proxied global business cycle. Our results have important implications for investors seeking opportunity of portfolio diversification.

Original languageEnglish
Title of host publicationHandbook of Asian finance
Subtitle of host publicationREITs, trading, and fund performance
EditorsDavid Lee Kuo Chuen, Greg N. Gregoriou
Place of PublicationSan Diego, CA
PublisherElsevier
Chapter21
Pages393-421
Number of pages29
Volume2
ISBN (Electronic)9780128010631
ISBN (Print)9780128009864
DOIs
Publication statusPublished - 28 May 2014
Externally publishedYes

Keywords

  • Business cycle
  • Japanese mutual funds
  • Leverage effect
  • News sentiment
  • Regime-Switching GARCH

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  • Cite this

    Ho, K-Y., Shi, Y., & Zhang, Z. (2014). What drives the time-varying performance of Japanese mutual funds? In D. L. K. Chuen, & G. N. Gregoriou (Eds.), Handbook of Asian finance: REITs, trading, and fund performance (Vol. 2, pp. 393-421). San Diego, CA: Elsevier. https://doi.org/10.1016/B978-0-12-800986-4.00021-2