The Timing Performance of Local Versus Foreign Mutual Fund Managers: An Analysis of Market, Volatility and Joint Timing

Abstract

I examine the market, volatility and joint timing performance of US equity funds (locals) versus UK equity funds (foreigners) invested in the US equity market. I use daily mutual fund returns and hypothesise that foreign fund managers are more specialised in timing and thus better interpret the macroeconomic factors than local fund managers. Using parametric estimates, I find evidence that UK funds have a statistically better timing ability than US funds. I use a nonparametric model to show that UK funds have better quality of timing information to forecast US market movements while US funds react more aggressively to timing information. Moreover UK fund managers have a less aggressive investment style by timing the volatility pro-cyclically contrary to US fund managers that time the volatility counter-cyclically.