IDEAS home Printed from https://ideas.repec.org/a/ibn/ijefaa/v11y2019i2p1-16.html
   My bibliography  Save this article

Market Timing and Selectivity: An Empirical Investigation of European Mutual Fund Performance

Author

Listed:
  • Lu¨ªs Oliveira
  • Tom¨¢s Salen
  • Jos¨¦ Dias Curto
  • Nuno Ferreira

Abstract

Using the models proposed by (Treynor & Mazuy, 1966; Henriksson & Merton, 1981), the present study examines the selection and timing abilities of mutual fund managers to denote the practice of these strategies as a means to achieve superior performance. For the 163 European equity mutual funds that followed active management strategies between January 2000 and December 2016, there was no evidence that fund managers used market timing abilities to anticipate the market movements. However, the selectivity component of returns presents slightly positive results, despite the poor overall performance.

Suggested Citation

  • Lu¨ªs Oliveira & Tom¨¢s Salen & Jos¨¦ Dias Curto & Nuno Ferreira, 2019. "Market Timing and Selectivity: An Empirical Investigation of European Mutual Fund Performance," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(2), pages 1-16, February.
    • Handle: RePEc:ibn:ijefaa:v:11:y:2019:i:2:p:1-16
    as

    Download full text from publisher

    File URL: http://www.ccsenet.org/journal/index.php/ijef/article/download/0/0/38049/38530
    Download Restriction: no
    File URL: http://www.ccsenet.org/journal/index.php/ijef/article/view/0/38049
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Henriksson, Roy D & Merton, Robert C, 1981. "On Market Timing and Investment Performance. II. Statistical Procedures for Evaluating Forecasting Skills," The Journal of Business, University of Chicago Press, vol. 54(4), pages 513-533, October.
    2. Jensen, Michael C, 1969. "Risk, The Pricing of Capital Assets, and the Evaluation of Investment Portfolios," The Journal of Business, University of Chicago Press, vol. 42(2), pages 167-247, April.
    3. Admati, Anat R, et al, 1986. "On Timing and Selectivity," Journal of Finance, American Finance Association, vol. 41(3), pages 715-730, July.
    4. Maria Céu Cortez & Florinda Silva & Nelson Areal, 2012. "Socially Responsible Investing In The Global Market: The Performance Of Us And European Funds," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 17(3), pages 254-271, July.
    5. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    6. Blume, Marshall E & Friend, Irwin, 1973. "A New Look at the Capital Asset Pricing Model," Journal of Finance, American Finance Association, vol. 28(1), pages 19-33, March.
    7. Nicolas P. B. Bollen, 2005. "Short-Term Persistence in Mutual Fund Performance," The Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 569-597.
    8. 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.
    9. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    10. Marshall E. Blume & Irwin Friend, "undated". "A New Look at the Capital Asset Pricing Model," Rodney L. White Center for Financial Research Working Papers 01-71, Wharton School Rodney L. White Center for Financial Research.
    11. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    12. Jiang, Wei, 2003. "A nonparametric test of market timing," Journal of Empirical Finance, Elsevier, vol. 10(4), pages 399-425, September.
    13. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    14. Luis Ferruz Agudo & J. L. Sarto & L. Vicente, 2008. "Herding behaviour in Spanish equity funds," Applied Economics Letters, Taylor & Francis Journals, vol. 15(7), pages 573-576.
    15. Carl R. Chen & Steve Stockum, 1986. "Selectivity, Market Timing, And Random Beta Behavior Of Mutual Funds: A Generalized Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 9(1), pages 87-96, March.
    16. Nicolas P. B. Bollen & Jeffrey A. Busse, 2001. "On the Timing Ability of Mutual Fund Managers," Journal of Finance, American Finance Association, vol. 56(3), pages 1075-1094, June.
    17. Henriksson, Roy D, 1984. "Market Timing and Mutual Fund Performance: An Empirical Investigation," The Journal of Business, University of Chicago Press, vol. 57(1), pages 73-96, January.
    18. Merton, Robert C, 1981. "On Market Timing and Investment Performance. I. An Equilibrium Theory of Value for Market Forecasts," The Journal of Business, University of Chicago Press, vol. 54(3), pages 363-406, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Marwa Zouaoui, 2019. "Selectivity and Market Timing Ability of Fund Managers: Comparative Analysis of Islamic and Conventional HSBC Saudi Mutual Funds," IJFS, MDPI, vol. 7(3), pages 1-19, September.
    3. Ya Dai & Liang Guo & Steve Liu & Hongxian Zhang, 2023. "Are socially responsible exchange‐traded funds paying off in performance?," International Review of Finance, International Review of Finance Ltd., vol. 23(1), pages 4-26, March.
    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Keith Cuthbertson & Dirk Nitzsche & Niall O'Sullivan, 2010. "The Market Timing Ability of UK Mutual Funds," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(1-2), pages 270-289.
    2. Romacho, Joao Carlos & Cortez, Maria Ceu, 2006. "Timing and selectivity in Portuguese mutual fund performance," Research in International Business and Finance, Elsevier, vol. 20(3), pages 348-368, September.
    3. Jung‐Soon Shin & Minki Kim & Dongjun Oh & Tong Suk Kim, 2019. "Do hedge funds time market tail risk? Evidence from option‐implied tail risk," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(2), pages 205-237, February.
    4. Pankaj K. Agarwal & H. K. Pradhan, 2018. "Mutual Fund Performance Using Unconditional Multifactor Models: Evidence from India," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(2_suppl), pages 157-184, August.
    5. Bangassa, Kenbata & Su, Chen & Joseph, Nathan L., 2012. "Selectivity and timing performance of UK investment trusts," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(5), pages 1149-1175.
    6. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    7. Angelidis, Timotheos & Giamouridis, Daniel & Tessaromatis, Nikolaos, 2013. "Revisiting mutual fund performance evaluation," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1759-1776.
    8. Jiang, George J. & Yao, Tong & Yu, Tong, 2007. "Do mutual funds time the market? Evidence from portfolio holdings," Journal of Financial Economics, Elsevier, vol. 86(3), pages 724-758, December.
    9. Sebastian Bunnenberg & Martin Rohleder & Hendrik Scholz & Marco Wilkens, 2019. "Jensen's alpha and the market‐timing puzzle," Review of Financial Economics, John Wiley & Sons, vol. 37(2), pages 234-255, April.
    10. Fernando Rubio, 2005. "Eficiencia De Mercado, Administracion De Carteras De Fondos Y Behavioural Finance," Finance 0503028, University Library of Munich, Germany, revised 23 Jul 2005.
    11. 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.
    12. 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.
    13. William Goetzmann & Jonathan Ingersoll & Zoran Ivkovich, 1998. "Monthly Measurement of Daily Timers," Yale School of Management Working Papers ysm88, Yale School of Management, revised 01 Oct 2000.
    14. Shafiqur Rahman & Cheng-Few Lee & Yaqing Xiao, 2017. "The investment performance, attributes, and investment behavior of ethical equity mutual funds in the US: an empirical investigation," Review of Quantitative Finance and Accounting, Springer, vol. 49(1), pages 91-116, July.
    15. Cuthbertson, Keith & Nitzsche, Dirk, 2013. "Performance, stock selection and market timing of the German equity mutual fund industry," Journal of Empirical Finance, Elsevier, vol. 21(C), pages 86-101.
    16. Jing-Zhi Huang & Ying Wang, 2014. "Timing Ability of Government Bond Fund Managers: Evidence from Portfolio Holdings," Management Science, INFORMS, vol. 60(8), pages 2091-2109, August.
    17. Herrmann, Ulf & Scholz, Hendrik, 2013. "Short-term persistence in hybrid mutual fund performance: The role of style-shifting abilities," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2314-2328.
    18. Keith Cuthbertson & Dirk Nitzsche & Niall O'Sullivan, 2010. "The Market Timing Ability of UK Mutual Funds," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(1‐2), pages 270-289, January.
    19. Ding, Jing & Jiang, Lei & Liu, Xiaohui & Peng, Liang, 2023. "Nonparametric tests for market timing ability using daily mutual fund returns," Journal of Economic Dynamics and Control, Elsevier, vol. 150(C).
    20. Joanna Olbryś, 2010. "Three-factor market-timing models with Fama and French’s spread variables," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 20(2), pages 91-106.

    More about this item

    Keywords

    mutual funds; performance evaluation; selectivity; market timing; European funds;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibn:ijefaa:v:11:y:2019:i:2:p:1-16. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Canadian Center of Science and Education (email available below). General contact details of provider: https://edirc.repec.org/data/cepflch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.