Downside Risk and Fund Flow
This paper examines the possibility that investor redemption is driven by return implied risk profile of the fund. We find that funds with asymmetric exposure to downside risk experience more than double the performance induced fund flow than those without. The magnitude of amplification increases significantly during market stress. These effects are both statistically and economically significant. From a financial stability perspective, this measure of downside risk exposure identifies funds that are more vulnerable to redemption in times of stress. Downside risk identification based on put-writing strategy yields more robust results on fund flow than alternative measures of return implied risk.