Abstract
Huang and Kilic (2019) demonstrate that gold to platinum price ratio (GP), which proxies for tail
risk in the economy, is a priced risk factor in the cross-section of stock returns. We document that
GP negatively affects the mutual fund flows of the active equity funds. In cross-sectional
regressions, we find that funds with high betas with respect to the change in GP (GP betas) have larger future fund flows, as such funds provide a hedge against economic distress. Further, GP betas help predict the future performance of the fund in the next few quarters. GP betas also relate negatively to the downside risk of the fund, implying that funds could potentially reduce their left-tail risk by tilting towards securities with above average GP beta. We also examine the flows to active corporate bond funds and passive funds. While these effects of GP are largely observable for passive funds, they are not as strongly observable for corporate bond funds.
risk in the economy, is a priced risk factor in the cross-section of stock returns. We document that
GP negatively affects the mutual fund flows of the active equity funds. In cross-sectional
regressions, we find that funds with high betas with respect to the change in GP (GP betas) have larger future fund flows, as such funds provide a hedge against economic distress. Further, GP betas help predict the future performance of the fund in the next few quarters. GP betas also relate negatively to the downside risk of the fund, implying that funds could potentially reduce their left-tail risk by tilting towards securities with above average GP beta. We also examine the flows to active corporate bond funds and passive funds. While these effects of GP are largely observable for passive funds, they are not as strongly observable for corporate bond funds.
| Original language | English |
|---|---|
| Article number | 101552 |
| Peer-reviewed scientific journal | Journal of Empirical Finance |
| Volume | 79 |
| Pages (from-to) | 1-53 |
| Number of pages | 53 |
| ISSN | 0927-5398 |
| DOIs | |
| Publication status | Published - 10.09.2024 |
| MoE publication type | A1 Journal article - refereed |
Keywords
- 511 Economics
- gold to platinum price ratio
- mutual funds
- economic distress
- fund flows
- downside risk
Areas of Strength and Areas of High Potential (AoS and AoHP)
- AoS: Financial management, accounting, and governance
