The effect of market fear on mutual fund performance

Abstract

This study investigates the impact of market fear on mutual fund performance by analyzing a dataset of Norwegian funds spanning from 2000 to 2022. Our research reveals that mutual funds tend to underperform during periods characterized by heightened market fear, as indicated by elevated VIX values. Additionally, negative annualized alphas and increased Rolling Beta values provide further evidence of this underperformance. Notably, our analysis demonstrates that the Beta VSTOXX variable does not exhibit a significant influence on mutual fund performance. Instead, we find that market fear in the United States, as measured by the VIX, holds greater importance, consistently displaying a negative coefficient and indicating an adverse effect on mutual fund returns. These results emphasize the significance of considering US market fear when making investment decisions, benefiting both fund managers and investors by enhancing their understanding of relevant factors affecting mutual fund performance.