FUND MANAGERS WORKING STYLES AND DOWNSIDE RISK: EVIDENCE FROM EQUITY MUTUAL FUNDS

Abstract

This paper reviews the existence between the downside risk and the working styles of fund managers in equity mutual funds. The analysis is based on panel information on 120 actively managed equity mutual funds in the period 2013-2022 and assesses whether managerial styles are related to the adjusted degree of losses in down within the market environment. Downside risk is calculated based on downside deviation, maximum drawdown and downside beta and working styles based on Active Share, portfolio concentration and the aspect of risk-shifting behaviour. The results of panel regression indicate that Active Share is positively linked to the lessening of downside risk, which is significant, demonstrating the successful loss reduction by truly active managers. Conversely, concentrated portfolios and aggressive risk transferring cause a high level of downside exposure. The results indicate that the downside risk is a well-managed phenomenon that is not simply imposed by the market dynamics but a result of management choices. The research study also provides contributions to the body of literature on mutual fund evaluation by noting downside risk management as a unique aspect of fund manager skill that has significant implications to investors, fund families and regulators.