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The value of coskewness in mutual fund performance evaluation

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  • Moreno, David
  • Rodríguez, Rosa

Abstract

Recent asset pricing studies demonstrate the relevance of incorporating coskewness in asset pricing models, and illustrate how this component helps to explain the time variation of ex-ante market risk premiums. This paper analyzes the role of coskewness in mutual fund performance evaluation and finds evidence that adding a coskewness factor is economically and statistically significant. It documents that coskewness is sometimes managed and shows persistence of the coskewness policy over time. One of the most striking results is that many negative (positive) alpha funds, measured relative to the CAPM risk adjustments, would be reclassified as positive (negative) alpha funds using a model with coskewness. Therefore, performance ranking based on risk-adjusted returns without considering coskewness could generate an erroneous classification. Moreover, some fund characteristics, such as turnover ratio or category, are related to the likelihood of managing coskewness.

Suggested Citation

  • Moreno, David & Rodríguez, Rosa, 2009. "The value of coskewness in mutual fund performance evaluation," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1664-1676, September.
  • Handle: RePEc:eee:jbfina:v:33:y:2009:i:9:p:1664-1676
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    Cited by:

    1. Ammann, Manuel & Kind, Axel & Seiz, Ralf, 2010. "What drives the performance of convertible-bond funds?," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2600-2613, November.
    2. Rui Pedro Brito & Hélder Sebastião & Pedro Godinho, 2015. "Efficient Skewness/Semivariance Portfolios," GEMF Working Papers 2015-05, GEMF, Faculty of Economics, University of Coimbra.
    3. Eling, Martin & Faust, Roger, 2010. "The performance of hedge funds and mutual funds in emerging markets," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1993-2009, August.
    4. Kostakis, Alexandros & Muhammad, Kashif & Siganos, Antonios, 2012. "Higher co-moments and asset pricing on London Stock Exchange," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 913-922.
    5. Suresh Nallareddy & Maria Ogneva, 0. "Accrual quality, skill, and the cross-section of mutual fund returns," Review of Accounting Studies, Springer, vol. 0, pages 1-40.
    6. Vendrame, Vasco & Tucker, Jon & Guermat, Cherif, 2016. "Some extensions of the CAPM for individual assets," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 78-85.
    7. Huang, Wei & Liu, Qianqiu & Ghon Rhee, S. & Wu, Feng, 2012. "Extreme downside risk and expected stock returns," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1492-1502.
    8. Jiang, Chonghui & Ma, Yongkai & An, Yunbi, 2016. "Portfolio selection with a systematic skewness constraint," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 393-405.
    9. Petros Messis & Achilleas Zapranis, 2014. "Herding behaviour and volatility in the Athens Stock Exchange," Journal of Risk Finance, Emerald Group Publishing, vol. 15(5), pages 572-590, November.
    10. Mamatzakis, E & Babalos, Vassilios & filipas, n, 2013. "Fund Performance Evaluation in Greece Revisited: Evidence from the Impact of Operational Attributes," MPRA Paper 51640, University Library of Munich, Germany.
    11. Högholm, Kenneth & Knif, Johan & Koutmos, Gregory & Pynnönen, Seppo, 2011. "Distributional asymmetry of loadings on market co-moments," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 851-866.
    12. repec:spr:reaccs:v:22:y:2017:i:2:d:10.1007_s11142-017-9389-z is not listed on IDEAS

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