Fund Performance in Stable and Volatile Markets : Swedish Mutual Fund Characteristics and Risk-adjusted Returns, 2018-2024

Sammanfattning

This thesis investigates how the mutual fund characteristics: fees, fund size, ESG rating, andmanagement style are associated with risk-adjusted returns under different market conditions.This study uses quantitative research design to analyze Swedish equity mutual funds from 2018 to 2024. The period includes both stable market conditions and a phase of significant market volatility. The increased volatility can be attributed to external shocks, including the COVID-19 pandemic and the Russia-Ukraine war. Employing both Ordinary Least Squares (OLS) regression and Generalized Additive Models (GAM), the study explores linear and non-linear associations between fund characteristics and risk-adjusted returns. The results indicate that fund characteristics do matter, and their associations vary with market conditions. Fund size shows a consistently positive relationship with risk-adjusted returns, whereas fees are negatively associated with risk-adjusted returns. ESG ratings exhibit an inverted U-shaped relationship during the period of heightened volatility, and the association of active management becomes favorable during longer or more volatile periods. These results challenge the assumptions of the Efficient Market Hypothesis (EMH) and provide empirical support for the Adaptive Market Hypothesis (AMH), emphasizing the dynamic nature of market efficiency. This research contributes to the limited literature on the Swedish mutual fund market by offering practical insights for investors and adding to theoretical discussions.