Downside Risk Timing by Mutual Funds
34 Pages Posted: 28 Oct 2014
Date Written: October 27, 2014
We study whether mutual funds systematically manage downside risk of their portfolios in ways that improve their performance. We find that 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 who are not by 6.1bp per month (or 0.73 percent per year).
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