Downside Risk Timing by Mutual Funds

Bodnaruk, Andriy; Chokaev, Bekhan; Simonov, Andrei

doi:10.2139/ssrn.2515421

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Downside Risk Timing by Mutual Funds

34 Pages Posted: 28 Oct 2014

See all articles by Andriy Bodnaruk

Bekhan Chokaev

Russian Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA); Gaidar Institute for Economic Policy

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Centre for Economic Policy Research (CEPR)

There are 3 versions of this paper

Date Written: October 27, 2014

Abstract

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).

Suggested Citation: Suggested Citation

Bodnaruk, Andriy and Chokaev, Bekhan and Simonov, Andrei, Downside Risk Timing by Mutual Funds (October 27, 2014). Available at SSRN: https://ssrn.com/abstract=2515421 or http://dx.doi.org/10.2139/ssrn.2515421