Assessing the Performance and Risk-Adjusted Returns of Financial Mutual Funds

Abstract

In this study, we provide a comprehensive examination of the performance of financial (specialty sector financial) mutual funds over a 23-year period, a much longer time frame than what has been analyzed in previous literature. To fully understand the performance of these mutual funds, we consider multiple factors, including risk-adjusted performance, both unconditional and conditional multifactor analysis, and market timing and selectivity. Financial mutual funds have higher risk-adjusted performance than the overall market and financial sector benchmarks. However, fund alphas are not different from zero, and managers do not exhibit market timing or security selection abilities. Our analysis not only includes the overall performance of these mutual funds, but we also delve into sub-samples before and after the 2008 financial crisis and during the recent Coronavirus pandemic.

Keywords

• financial mutual funds
• specialty sector financial
• risk-adjusted performance
• unconditional and conditional multifactor analysis
• market timing
• selectivity