Downside Risk and Mutual Fund Flows

47 Pages Posted: 3 Jan 2019 Last revised: 9 Sep 2019

See all articles by Nikolaos T. Artavanis

Nikolaos T. Artavanis

Tulane University; Virginia Polytechnic Institute & State University - Pamplin College of Business

Asli Eksi

Salisbury University - Perdue School of Business

Gregory B. Kadlec

Virginia Polytechnic Institute & State University - Pamplin College of Business

Date Written: September 7, 2019

Abstract

There is little empirical evidence regarding downside risk in asset pricing, due in part to problems inherent in estimating downside risk. We argue that Berk and van Binsbergen (2016)’s approach to testing asset pricing models using the relation between investor flows and risk-adjusted fund returns is well suited for examining the merits of downside risk. We extend the analysis of Berk and van Binsbergen (2016) and Barber et al. (2016) by showing that investors care more about downside market risk than unconditional market risk when choosing mutual funds. Our study provides novel insights regarding investors’ preferences. We find that investors’ sensitivity to downside risk increases following market crises and is more pronounced among funds with conservative investment objectives. Finally, we find that investors’ response to downside risk is not subsumed by information/influence from Morningstar ratings.

Keywords: Downside Risk, Mutual Fund Flows, Asset Pricing, Investor Behavior

JEL Classification: G11, G12, G23

Suggested Citation

Artavanis, Nikolaos T. and Artavanis, Nikolaos T. and Eksi, Asli and Kadlec, Gregory B., Downside Risk and Mutual Fund Flows (September 7, 2019). Available at SSRN: https://ssrn.com/abstract=3302876 or http://dx.doi.org/10.2139/ssrn.3302876

Nikolaos T. Artavanis

Tulane University ( email )

A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
United States

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

Asli Eksi (Contact Author)

Salisbury University - Perdue School of Business ( email )

1101 Camden Avenue
Salisbury, MD 21801
United States

Gregory B. Kadlec

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States
540-231-4316 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
176
Abstract Views
1,030
rank
213,613
PlumX Metrics