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The Impact of the Size of Funds on the Use of Selectivity and Market Timing by Investment Funds

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  • Żebrowska-Suchodolska Dorota

    (Warsaw University of Life Sciences – SGGW, Poland)

Abstract

Research background Investment funds are an important part of the capital market. Household savings in this type of asset are increasing every year. From an investor’s point of view, the performance of funds is important. These, along with the risks, are what most often determine the choice of fund type and finally the specific fund. The performance of a fund is often determined by both the size of the fund and the application of the managers’ selectivity and market sense. Purpose The aim of this research is to investigate the impact of fund size on performance through the use of selectivity and market sense by managers. Dividing funds into size groups will allow the search for patterns in terms of managers’ use of market timing. Research methodology The research used a Treynor-Mazuy model as a market timing model and Ward’s method as the cluster analysis methods. The performance of the funds was determined using an investment performance indicator, i.e., Omega. Results The obtained results indicate that the funds are similar within the groups. However, there were differences in the results between the groups. During periods of high volatility, it is recommended to invest in units of funds with an average size below the median. Novelty The added value is the study of market timing in groups of funds similar in size. In each group, the results of the Treynor-Mazuy model estimation, and the Omega investment efficiency index were determined, and the differences in the obtained results between the groups were examined. Finally, all funds were clustered using the Ward method.

Suggested Citation

  • Żebrowska-Suchodolska Dorota, 2024. "The Impact of the Size of Funds on the Use of Selectivity and Market Timing by Investment Funds," Folia Oeconomica Stetinensia, Sciendo, vol. 24(2), pages 419-437.
  • Handle: RePEc:vrs:foeste:v:24:y:2024:i:2:p:419-437:n:1020
    DOI: 10.2478/foli-2024-0032
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    More about this item

    Keywords

    market timing; selectivity; fund size; classification; open-ended mutual funds; performance funds; decision making;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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