Maximum Drawdown as Fund Performance Predictor

Is past rolling maximum drawdown, a simple measure of recent downside risk, a useful indicator of future mutual fund performance? In their June 2022 paper entitled "Maximum Drawdown as Predictor of Mutual Fund Performance and Flows", Timothy Riley and Qing Yan investigate whether style-adjusted maximum drawdown based on daily returns over the last 12 months usefully predicts mutual fund performance. To adjust for fund style differences, they subtract from each individual unadjusted drawdown the average unadjusted drawdown across all funds in the same style during the measurement interval. Their principal performance metric is alpha based on a 4-factor (market, size, book-to-market, momentum) model of stock returns. Using daily net returns for 2,188 actively managed long-only U.S. equity mutual funds that are at least two years old and have at least $20 million in assets during January 1999 through December 2019, they find that: