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Defensive Strategy during Market Downturns-Taiwan’s Mutual Funds
Christine W. Lai
Market timing and stock picking strategies
The purpose of this research is to discover the defensive strategy of Taiwanese mutual fund managers during market downturns from 1994 to 2010. Hoping to provide the result as suggestion to investors when they confront recession. In the research, in order to obtain risk-adjusted rate of return, the daily rate of return of funds is used to deduct risk-free rate to regress five factors, then ranking risk-adjusted rate of return in each period to get winner and loser funds. Observe the impact of the rate of change of variables in the last period on the shareholding change rate of winners and losers. Fama-MacBeth model is used to examine the cross-section and over time significant level of variables. Overall, during market downturns, price to book ratio is a good indicator compare to other variables. Moreover, fund managers of the losers will increase the shareholding ratio because of increasing gross profit. However, due to the phenomenon of lower adjusted R square of whole model, the result revealed that the managers do not use the fixed strategy criteria during market downturns.
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