Drivers of neutrality and performance in equity market-neutral mutual funds

Abstract

The article examines the determinants of the divergence in market exposure experienced by Equity Market-Neutral Mutual Funds. Although more recent and diversified, EMN funds have been rarely studied in the literature. This paper evaluates the Market-Neutral category focusing on strategies that EMN managers construct upon cash holdings. The first assessment finds considerable differences between self-labeled EMN funds and the industry. Secondly, meaningful relation between cash and the variation in beta is found. However, the lack of market-timing skills disproves the presence of beneficial shared cash strategies. Final hypotheses sustain the findings, paving the way for additional research.