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Can mutual fund managers time commonality in stock market misvaluation?

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  • Zheng, Yao
  • Osmer, Eric
  • Zheng, Liancun

Abstract

This study analyzes whether mutual fund managers possess skill in timing stock market misvaluation. We find that managers successfully increase their market exposure when there is more systematic underpricing. Managers in the top misvaluation timing decile outperform ones in the bottom decile by approximately 3% per year. These results remain robust in the subperiod and exclusion of crisis periods analyses. A fund characteristic analysis shows that younger and smaller funds, and funds with a high turnover ratio tend to increase fund exposure to the market when there is more aggregate misvaluation present in the stock market.

Suggested Citation

  • Zheng, Yao & Osmer, Eric & Zheng, Liancun, 2021. "Can mutual fund managers time commonality in stock market misvaluation?," Journal of Economics and Business, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:jebusi:v:117:y:2021:i:c:s0148619521000369
    DOI: 10.1016/j.jeconbus.2021.106018
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    Cited by:

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    2. Dachen Sheng & Heather A. Montgomery, 2024. "Assessing Mutual Fund Performance in China: A Sector Weight-Based Approach," Mathematics, MDPI, vol. 12(16), pages 1-21, August.

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    More about this item

    Keywords

    Commonality; Misvaluation; Fund characteristics; Mutual funds; Timing ability;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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