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Market Timing : A Decomposition of Mutual Fund Returns

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  • Swinkels, L.A.P.

    (Tilburg University, School of Economics and Management)

  • van der Sluis, P.J.

    (Tilburg University, School of Economics and Management)

  • Verbeek, M.J.C.M.

    (Tilburg University, School of Economics and Management)

Abstract

We decompose the conditional expected mutual fund return in five parts. Two parts, selectivity and expert market timing, can be attributed to manager skill, and three to variation in market exposure that can be achieved by private investors as well. The dynamic model that we use to estimate the relative importance of the components in the decomposition is a generalization of the performance evaluation models by Lockwood and Kadiyala (1988) and Ferson and Schadt (1996). We find that the restrictions imposed in existing models may lead to different inferences about manager selectivity and timing skill. The results from our sample of 78 asset allocation mutual funds indicate that several funds exhibit significant expert market timing, but for most funds variation in market exposures does not yield any economically significant return. Funds with high turnover and expense ratios are associated with managers with better skills.
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Suggested Citation

  • Swinkels, L.A.P. & van der Sluis, P.J. & Verbeek, M.J.C.M., 2003. "Market Timing : A Decomposition of Mutual Fund Returns," Other publications TiSEM 5b546da3-eaab-4bcf-be9c-5, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:5b546da3-eaab-4bcf-be9c-502b2e895003
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G3 - Financial Economics - - Corporate Finance and Governance
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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