Downside Risk Timing by Mutual Funds

Publication date
Wednesday, 24.06.2015

Authors
Andriy Bodnaruk, Bekhan Chokaev, and Andrei Simonov

Series
Midwest Finance Association, 2015

Annotation

We study whether mutual funds systematically manage 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. Funds investing in large-cap and value stocks have stronger downside risk timing skills. Managers adjust funds’ downside risk exposure in response to macroeconomic information. Funds more skilled in timing downside risk outperform those which are not by 13.8bp per month (or 1.67 percent per year).

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