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In this article, we examine whether active mutual funds that markedly change their exposure to systematic risk factors subsequently outperform. We propose a new returns‐based approach to assess the degree to which mutual funds adjust their risk exposure, with the benefit of not requiring periodically updated information related to funds' portfolio holdings. Applying this measure to active US mutual funds from 1990 to 2016, we provide evidence that mutual fund managers exhibiting substantial changes in their risk exposure generate alphas that are significantly higher than those with limited exposure variation. Other characteristics such as fund tracking errors, fund size, and investment style, or holdings‐based measures cannot explain these findings. Analyzing the long‐term persistence of active management, we provide evidence that the outperformance is due to managers' skill rather than to luck. Our findings contribute to the empirical evidence suggesting that active management may in some cases, produce short‐term performance persistence. [ABSTRACT FROM AUTHOR]

This study analyzes the demand for conventional and socially responsible (SR) mutual funds using cash flow data from a large sample of U.S. equity funds. For both types of funds, previous results have a positive impact on inflows. However, redemptions' behavior differs. Outflows correlate negatively with past results in conventional portfolios, whereas this relationship is positive for SR funds: investors are more likely to redeem shares in the best‐performing funds while holding funds that performed poorly. This behavior is compatible with a disposition effect in SR funds. These results hold even after controlling for other variables driving mutual fund demand. Hence, inflows and outflows of conventional funds were found to be positively related to past idiosyncratic risk, expenses and turnover, but negatively related to size and age. For SR funds, these relationships are stronger for size and idiosyncratic risk, and take the opposite sign for age, expenses and turnover. [ABSTRACT FROM AUTHOR]

This study analyses the performance and market timing of US socially responsible (SR) mutual funds in relation to business cycle regime shifts and different grouping criteria: Ethical strategy focus, SR attributes scores and Morningstar category. Different methodologies are applied and results highlight the importance of considering specific benchmarks related to the investment style in evaluating the SR fund performance. Our results show that, in aggregate, the abnormal performance of SR funds is negative and significant in expansion periods, but no significant differences are found in recession periods. When specific benchmarks are considered, performance improves in recession periods, particularly for environmental funds, those with high SR attributes scores, and funds from the nine Morningstar style box categories. Market timing of SR funds takes positive values and is partially significant. Previous evidence of negative timing after a recent financial crisis vanishes when specific benchmarks are considered. For comparative purposes the performance of conventional US mutual funds is also analysed. There are no significant differences between the performance of SR and conventional mutual funds when a fair comparison is made within the same style categories. When all the SR funds are considered, they underperform conventional funds in expansion sub‐periods, but in recession sub‐periods they perform better, although the differences observed are not significant. [ABSTRACT FROM AUTHOR]