Working Paper: CEPR ID: DP10639
Authors: Andriy Bodnaruk; Bekhan Chokaev; Andrei Simonov
Abstract: 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. The economic value of downside risk timing is comparable to that of market timing.
Keywords: downside risk; market timing; mutual funds
JEL Codes: G10; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Downside Risk Timing Ability (D81) | Fund Performance (G19) |
| Managerial Skill (M54) | Downside Risk Timing Ability (D81) |
| Macroeconomic Information (E39) | Downside Risk Timing Ability (D81) |
| Downside Risk Timing Ability (D81) | Abnormal Returns (G14) |
| Macroeconomic Conditions (E66) | Timing Decisions (C41) |