The Review of Asset Pricing Studies Vol. 9 No. 1 2019
Downside Risk Timing by Mutual Funds
Abstract
We study whether mutual funds systematically manage the downside risk of their portfolios in ways that improve their performance. We find that actively managed mutual funds on average possess positive downside-risk-timing ability. Managers adjust funds’ downside risk exposure in response to macroeconomic information; however, downside-risk-timing skills remain strong even after controlling for macro variables. Funds more skilled in timing downside risk outperform those that are not by 14.3 bp per month (or 1.73% annualized) unconditionally and by 39.9 bp per month (or 4.89% annualized) during recessions; they also attract larger flows. Received September 11, 2016; editorial decision Januaruy 08, 2018 by Editor Wayne Ferson.
- DOI
- 10.1093/rapstu/ray003
- Volume
- 9
- Issue
- 1
- Pages
- 171-196
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib