No. of Recommendations: 4
A Tale of Bad Days: Investor Preferences and Fund Manager Skill, 29 Aug 2025
"We merge return data from the CRSP mutual fund database with Morningstar’s daily total net assets (TNA), covering 1,967 funds between August 2008 and June 2022... We define a bad day as any day d in month t when the market return falls below the 5th percentile of returns over the prior year (t − 12 to t − 1)... Funds in the highest decile of past bad-day performance generate a net CAPM alpha 2.25 percent (t = 1.83) higher than funds in the lowest decile."
SSRN: Research paperThe cutoff for a bad day has been lower since 2000, and is directly related to the standard deviation.
badLimit TR1d TR1d
decde Average Average StdDev
192 -1.5% 0.07% 1.31%
193 -3.3% 0.02% 2.14%
194 -1.5% 0.04% 0.96%
195 -1.1% 0.07% 0.71%
196 -1.0% 0.03% 0.62%
197 -1.3% 0.03% 0.86%
198 -1.5% 0.07% 1.07%
199 -1.3% 0.07% 0.88%
200 -2.1% 0.01% 1.40%
201 -1.6% 0.05% 0.93%
202 -2.0% 0.06% 1.30%
Total -1.6% 0.05% 1.17%
correl 1.00 0.49 -0.96
badLimit is the 5th percentile of 1-day returns over the prior year
The number of bad-days varies significantly year to year.
year badLimit Number of bad-days
2025 -1.7% 16
2024 -1.3% 12
2023 -2.0% 1
2022 -2.2% 24
2021 -2.0% 5
2020 -2.8% 21
2019 -1.9% 5
2018 -1.3% 31
2017 -0.8% 7
2016 -1.7% 9
2015 -1.4% 19
2014 -1.2% 14
2013 -1.3% 8
2012 -2.2% 1
2011 -1.9% 24
2010 -2.1% 9
2009 -4.6% 2
2008 -2.7% 30
2007 -1.2% 28
2006 -1.0% 13
2005 -1.1% 8
2004 -1.4% 8
2003 -2.3% 3
2002 -2.2% 22
2001 -2.3% 11
2000 -2.1% 17
1999 -2.0% 8
1998 -1.7% 18
1997 -1.4% 21
1996 -1.0% 17
1995 -0.9% 8
