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A global approach to mutual funds market timing ability

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  • Bodson, Laurent
  • Cavenaile, Laurent
  • Sougné, Danielle

Abstract

In this paper, we globally investigate market timing abilities of mutual fund managers from the three perspectives: market return, market-wide volatility and aggregate liquidity. We propose a new specification to study market timing. Instead of considering an average market exposure for mutual funds, we allow mutual fund market betas to follow a random walk in the absence of market timing ability. As a consequence, we capture market exposure dynamics which is really due to manager market timing skills while allowing dynamics to come from other sources than market timing. We find that on average 6% of mutual funds display return market timing abilities while this percentage amounts to respectively 13% and 14% for volatility and liquidity market timing. We also analyze market timing by investment strategies and for surviving and dead funds. Dead funds exhibit lower volatility and liquidity timing skills than live funds.

Suggested Citation

  • Bodson, Laurent & Cavenaile, Laurent & Sougné, Danielle, 2013. "A global approach to mutual funds market timing ability," Journal of Empirical Finance, Elsevier, vol. 20(C), pages 96-101.
    • Handle: RePEc:eee:empfin:v:20:y:2013:i:c:p:96-101
    DOI: 10.1016/j.jempfin.2012.11.001
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    Cited by:

    1. Mahfooz Alam & Valeed Ahmad Ansari, 0. "Mutual fund managers’ market timing abilities: Indian evidence," Journal of Asset Management, Palgrave Macmillan, vol. 0, pages 1-13.
    2. Wattanatorn, Woraphon & Padungsaksawasdi, Chaiyuth, 2020. "Coskewness timing ability in the mutual fund industry," Research in International Business and Finance, Elsevier, vol. 53(C).
    3. Tchamyou, Vanessa S. & Asongu, Simplice A., 2017. "Conditional market timing in the mutual fund industry," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1355-1366.
    4. Mahfooz Alam & Valeed Ahmad Ansari, 2020. "Mutual fund managers’ market timing abilities: Indian evidence," Journal of Asset Management, Palgrave Macmillan, vol. 21(4), pages 342-354, July.
    5. Venessa S. Tchamyou & Simplice A. Asongu & Jacinta C. Nwachukwu, 2018. "Effects of asymmetric information on market timing in the mutual fund industry," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 14(5), pages 542-557, May.
    6. Wattanatorn, Woraphon & Padungsaksawasdi, Chaiyuth & Chunhachinda, Pornchai & Nathaphan, Sarayut, 2020. "Mutual fund liquidity timing ability in the higher moment framework," Research in International Business and Finance, Elsevier, vol. 51(C).
    7. S. Pavithra & Parthajit Kayal, 2023. "A Study of Investment Style Timing of Mutual Funds in India," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(1), pages 49-72, March.
    8. Wattanatorn, Woraphon & Padungsaksawasdi, Chaiyuth, 2021. "Cokurtosis and the Ability of Mutual Fund Managers," Finance Research Letters, Elsevier, vol. 40(C).
    9. Kenneth Hogholm & Johan Knif & Gregory Koutmos & Seppo Pynnonen, 2017. "Asymmetric Fund Performance Characteristics A Comparison of European and US Large-Cap Funds," Multinational Finance Journal, Multinational Finance Journal, vol. 21(1), pages 1-20, March.
    10. Yi, Li & Liu, Zilan & He, Lei & Qin, Zilong & Gan, Shunli, 2018. "Do Chinese mutual funds time the market?," Pacific-Basin Finance Journal, Elsevier, vol. 47(C), pages 1-19.
    11. Akshatha Suvarna, 2022. "Timing and Selectivity Performance of Mutual Fund Managers: Application of Conditional Models to Indian Equity Diversified Mutual funds," Jindal Journal of Business Research, , vol. 11(1), pages 81-98, June.
    12. El Ammari, Anis & Vidal, Marta & Vidal-García, Javier, 2023. "European market timing," The Journal of Economic Asymmetries, Elsevier, vol. 27(C).

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    More about this item

    Keywords

    Mutual fund; Market timing; Market return; Volatility; Liquidity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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