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."
https://papers.ssrn.com/sol3/papers.cfm?abstract_i...

The 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

Mechanical Investing FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.