A nonparametric approach to market timing: evidence from Spanish mutual funds

Abstract

The measuring of market timing abilities in investment portfolios is a relevant and widely analyzed question. Since the traditional parametric methodology can lead to biased results, we apply the nonparametric approach trying to overcome these biases and compare the results obtained by both methods. This comparison can help the readers to understand the role played by the assumptions behind each approach. We confirm the finding previously found in the literature about negative market timing abilities of Spanish equity fund managers. This finding suggests that neither the documented specification problems of the traditional models (heteroskedasticity, outliers and non-normality in financial data) nor the aggressiveness of some misinformed managers explain the poor timing abilities of managers.