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Do fund managers time implied tail risk? — Evidence from Chinese mutual funds

Zhongxin Ni, Linyu Wang and Weishu Li

Pacific-Basin Finance Journal, 2021, vol. 68, issue C

Abstract: This study shows that fund managers can time the market-wide implied tail risk using mutual fund data from China. Managers tend to decrease the market exposure when the market-implied tail risk increases. Furthermore, the implied tail risk timing ability brings significant economic value to investors. The top timer outperforms the bottom timer by approximately 2.77%–3.53% annually on excess returns with 30-day holding periods. Also, our findings are reliable when controlling market timing, volatility timing, and implied tail risk factor. Moreover, we discover that funds exhibiting implied tail risk timing ability tend to have long histories and higher flows. However, managers' financial derivatives background would not help in better timing the implied tail risk.

Keywords: Mutual fund; Implied tail risk; Timing ability; China (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21000974

DOI: 10.1016/j.pacfin.2021.101590

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Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

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