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JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Wiley and American Finance Association are collaborating with JSTOR to digitize, preserve and extend access THE QUESTION OF THE STABILITY of the systematic risk, or beta coefficient, for mutual funds over bull and bear market conditions has been debated in the literature [22,23,24,25,28,29]. The issue is particularly relevant when evaluating the market-timing and security selection ability of the fund manager. If beta does differ with market conditions, the use of beta estimated from the entire period can result in different conclusions about the skills of the fund manager under different market conditions. For example, suppose that a fund manager correctly adjusts the fund's beta in anticipation of a bull market. Hence, the beta for the bull period would be greater than the beta estimated from using both bull and bear market periods. If the beta for the entire time period is employed to evaluate investment performance, good investment performance in the bull period may be due solely to market-timing ability rather than security selection ability. By using the beta for the entire time period, no allowance is made for the increased risk exposure. In order to properly test for the security selection ability, the bull period beta should be employed if it differs from the beta for the entire period.'The purpose of this paper is to test whether the betas for 85 open-end investment companies (called simply mutual funds hereafter) differ in bull and bear market periods.2 The next section explains the statistical model that will be used in this study. In the third section the data base and bull-bear market definitions are described. The results are presented in the fourth section. Section V contains conclusions. * Associate Professor of Finance, Hofstra University and Professor of Economics and Finance, B.M. Baruch College, CUNY. We wish to thank the referee for his helpful comments.'To illustrate this point, let b, denote the portfolio data for the i-th mutual fund over the entire period and b, denote the beta for the bull market data for the same mutual fund. Using the capital asset pricing model, the expected return in the bull market based on beta for the entire period is:where r1e, rr and rm* represent the fund's return, the risk-free rate and the market return in the bull market respectively. If the fund's beta is correctly adjusted upward in anticipation of a bull market, b,. > b, and a bull period does occur such that (rm.rr) exceeds zero, then E(r,. I b,) < E(r, I b,).Although the ability of the fund's manager to time the market is good in this illustration, the ability to outperform the market on a risk-adjusted basis via security selection is measured by the difference between...

he behavior of the basis from the time a hedge is placed until the time it is T lifted is of considerable importance to the hedger. The very essence of hedg---ing involves an exchange of risk-of price level risk for basis risk. In the placing of a hedge, a hedger is confronted with a choice of several futures contracts. The selection of the appropriate contract is no trivial matter, since it involves the incurring of the risk pattern associated with that contract, Samuelson (1965) has shown theoretically that futures prices become increasingly volatile as a contract approaches the delivery period. Testing of this proposition has yielded mixed results. Castelino (1981) provided strong evidence supporting the Samuelson proposition, while Dusak (1979), Rutledge (1976), and Segall (1956) have come up with evidence which provides mild to no support.If futures prices do become increasingly volatile as contract maturity is approached, then that result has important implications for the behavior of the basis over the life of the same contract. In fact, this article shows that the volatility of changes in the basis must necessarily decline as maturity approaches. This means that hedging in a nearer contract involves less basis risk than hedging in a more distant contract. This in turn implies that if risk reduction is the motive for hedging, then a nearer futures contract is the preferred choice for hedging over a more distant contract.This article will analyze the behavior of the basis over the life of a commodity futures contract. Basis change volatility is discussed, and empirical evidence is presented on several commodities. We conclude with some suggestions for further research. A formal development of the model and a detailed description of the empirical tests are reported in the Appendices.