Derivatives do affect mutual fund returns: Evidence from the financial crisis of 1998

Charles Cao, Eric Ghysels, Frank Hatheway

Research output: Contribution to journalArticlepeer-review

8 Scopus citations


Using a unique data set of detailed balance sheet information on mutual funds, we find that most mutual funds using derivatives do so to a very limited extent that has little discernable impact on returns. However, there exist two types of funds that make more extensive use of derivatives, global funds and specialized domestic equity funds. The risk and return characteristics of these two groups of funds are significantly different from funds employing derivatives sparingly or not at all. Fund managers time their use of derivatives in response to past returns. Evidence during the financial crisis of August 1998 supports the hypothesis that the effects of derivative use are most pronounced during the periods of extreme movement.

Original languageEnglish (US)
Pages (from-to)629-658
Number of pages30
JournalJournal of Futures Markets
Issue number7
StatePublished - Jul 2011

All Science Journal Classification (ASJC) codes

  • Accounting
  • General Business, Management and Accounting
  • Finance
  • Economics and Econometrics


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