How Risk Averse are Fund Managers? Evidence from Irish Mutual Funds

Abstract

This paper investigates the degree of risk aversion exhibited by Irish fund managers. Assuming a mean-variance optimising manager, we employ the dynamic conditional correlation specification (Engle, 2002) of the multivariate GARCH model to estimate the coefficient of relative risk aversion. We find that fund managers whose remit is to “aggressively” manage their portfolios have coefficients lying between 1.69 and 2.42, while the risk aversion parameter of “balanced” managed funds range from 3.24 to 3.69. Finally we discuss the implications of these numbers on the likelihood of these managers partaking in risky investments.Risk aversion; Fund managers; Dynamic conditional correlations.