Market Timing Ability Research Articles

Portfolio performance under dynamic systematic risk and conditional betas: the South African unit trust market

This study examines whether South African unit trust managers can outperform the market and demonstrate distinct market-timing abilities under systematic dynamic risk. A conditional portfolio evaluation method is used under dynamic systematic risk. The BEKK-MGARCH model is applied to estimate the time-varying CAPM beta. The sample of the study includes 86 unit trust funds for the hardly studied multi-asset class between 2010 and 2019 in South Africa. The findings of the study show positive evidence that portfolio managers in the South African unit trust market possess some skills for market timing and outperformance. These results differ from most of the outcomes obtained through model-free performance-evaluation methods. The significant contribution of this study to the literature is in conditioning beta to both time and economic variables within the same asset pricing model, and then applying it to the emerging market of South Africa. Another strength of this paper is maintaining patient and formal adherence to econometric requirements of model validation. The empirical findings of the study should benefit portfolio managers, investors, and regulators with updated insight into the importance of considering both risk variability and changing economic factors in portfolio evaluation.

Does an Exchange-Traded Fund Converge to its Benchmark in the Long Run? Evidence from Ishares MSCI in Asia-Pacific Countries

This study examines the linkages between exchange-traded funds (ETFs) and their benchmark indices from 2013 to 2019 using iShares MSCI of ten Asia-Pacific countries. Our results show, first, that there is a long-run causality running from the benchmark index to ETFs. These findings imply that ETFs may replicate the performance of the benchmark index over the long run. Second, there is a unidirectional causal relationship from ETFs to the benchmark index in the short run, which indicates that benchmark index prices respond to the short-run changes in the ETF prices when new information is available. Third, there is a significant tracking error between ETFs and the benchmark index. This finding justifies the existence of stock selection and market timing abilities among the ETF managers. Lastly, fund managers add value to the ETFs and generate better than the market returns. This paper provides new evidence to support this new stylized fact of ETFs.

Non-linearity in Equity Market Timing: Empirical Evidence From the UK

This paper empirically tests the market timing theory to prove that issuing behavior of managers is non-linear. Consistent with the literature we show that mangers increase use of equity to finance their deficit when equities are overvalued and resort to a higher proportion of debt when equities are undervalued. Our results further suggest that mangers however exhibit a distinctive pattern when timing the market. The increase in reliance on equity to finance their deficit during periods of equity overvaluation is non-linear and only significant when the degree of overvaluation is not excessive. Furthermore, during periods of undervaluation managers resort to higher levels of leverage to finance their deficit only when undervaluation levels are excessive. This has serious implications on the ability of the equity market timing as a stand-alone theory in explaining capital structure decisions and poses some interesting implications on the debt-equity choice question when financing the deficit.

Trading Macro-Cycles of Foreign Exchange Markets Using Hybrid Models

Most existing studies on forecasting exchange rates focus on predicting next-period returns. In contrast, this study takes the novel approach of forecasting and trading the longer-term trends (macro-cycles) of exchange rates. It proposes a unique hybrid forecast model consisting of linear regression, multilayer neural network, and combination models embedded with technical trading rules and economic fundamentals to predict the macro-cycles of the selected currencies and investigate the predicative power and market timing ability of the model. The results confirm that the combination model has a significant predictive power and market timing ability, and outperforms the benchmark models in terms of returns. The finding that the government bond yield differentials and CPI differentials are the important factors in exchange rate forecasts further implies that interest rate parity and PPP have strong influence on foreign exchange market participants.

Foreign institutional ownership and the effectiveness of technical analysis

This paper investigates whether the effectiveness of technical analysis using a moving average (MA) approach varies with the level of information asymmetry. Using foreign institutional ownership as the proxy of information asymmetry, our empirical results indicate that moving average timing strategies for low foreign institutional ownership portfolios outperform buy-and-hold strategies. The effect holds after controlling the influence of information uncertainty suggested by Han et al. (2013). Moreover, the profitability of portfolios with low foreign institutional ownership increases along with information uncertainty. Finally, abnormal returns for MA strategies conditional on foreign institutional ownership are still significantly positive after controlling for Fama and French’s (1993) three-factor model, market conditions, and market timing abilities. Our evidence therefore concludes that, in addition to information uncertainty, information asymmetry is another driving force affecting the effectiveness of technical analysis.

Kinerja Investasi Exchange Trade Fund di Indonesia

The aim of this research is to obtain empirical evidence about the effect of stock selection skills, market timing ability, fund size and fund age on the performance of exchange trade funds. The population in this study are all exchange trade fund investment products listed on the Indonesia Stock Exchange from 2017 to 2019. The sampling technique uses purposive sampling. To test the hypothesis, multiple linear regression analysis was used. This study proves that stock selection skills have a positive effect on the performance of exchange trade funds in Indonesia. Meanwhile, market timing ability, fund size and fund age do not have a positive effect on the performance of exchange trade funds in Indonesia. The reason is that only one investment manager PT. Indo Premier Investment Management which is always active in trading exchange trade funds in Indonesia. This research has implications for the more active investment managers in offering exchange trade fund products to attract investors because they are able to survive in times of crisis.
 Keywords: Exchange Trade Funds; Investation.

The impact of carbon neutrality on the investment performance: Evidence from the equity mutual funds in BRICS

The promotion of carbon-neutral investments is among the primary constituents of developing a carbon-neutral economy. This is even more important for emerging economies that have constrained financial markets. In this paper, using monthly data between 2011 and 2019, we study 6519 actively managed mutual funds in BRICS after sorting them into black, brown, and green categories based on their investment holdings. Our comparative performance shows that green funds outperform their counterparts for the entire sample and within-country assessment. We also document the volatility and market timing ability of green funds, mainly absent in high emission funds. The results remained robust for various definitions of performance. Our findings also indicate Chinese green funds perform better than those of other countries. This is attributed to the multiple ecologically friendly economic policies that China has adopted over the years. Based on the results, we propose various interventions that could foster the adaptability of a carbon-neutral investment landscape.

An Empirical Investigation of the Performance of Fund Managers in Pakistan

This study aims to determine the stock selection ability and market timing ability of mutual fund managers, focusing on conventional funds and Islamic funds in Pakistan. Although there has been significant growth in the number and assets of mutual funds in recent years, few studies measure the performance of mutual funds managers. The scarcity of existing literature motivates this study. In this study, two models are used to measure the stock selection and market timing on a sample of conventional mutual funds and Islamic mutual funds over 2010 and 2019 using annual returns. Overall, the results indicate that the performance study of conventional mutual funds and Islamic mutual funds indicates that manager performance is not superior in all three portfolios, i.e., conventional funds, Islamic funds, and overall funds in over sample period. This also indicates that both Conventional and Islamic fund managers do not outperform the market (KSE 100 index). Thus, there is a lack of market timing ability. Using Tranoy and mazuy and Jansen models found a lack of stock selection and market timing ability of mutual fund managers in Pakistani mutual funds. In this study, I have applied only two models to examine both the timing and selection ability of conventional and Islamic Pakistani equity funds. For future possibilities, the study suggests adopting several methods and approaches like the TMFF3 model and HM-FF3 model, making the study more comprehensive and accurate than this research.

MARKET TIMING ABILITIES OF LARGE-CAP EQUITY MUTUAL FUND MANAGERS: EVIDENCE FROM INDIA

This study investigates the Market Timing Ability (MTA) of large-cap equity fund managers in India. The extensions of Treynor and Mazuy (TM) model and Henriksson and Merton (HM) model have been used by adding six additional factors related to the public information, 91-days Treasury bill’s yield, the dividend yield on CNX 500 index, term structure of interest rates, the price-to-earnings ratio, yield from foreign exchange rates changes, and growth rate in gold prices. The extended models are termed, conditional models. This study has used time-series data of large-cap equity funds. The results of the conditional and unconditional versions of TM and HM models reveal that the large-cap equity funds as a whole do not possess significant MTA, even though a considerable percentage of the funds under each of the models show significant positive MTA. The study also highlights that the inclusion of the public information variables reconstitutes the impact of the market timing factor and other beta estimates in the model.

Market Timing Skill and Trading Activity in Taiwan’s Retail-Dominated Futures Market

There has been substantial research on performance persistence among professional and retail investors. These studies typically employ infrequently sampled data on portfolio holdings and returns, making it difficult to distinguish skill from luck, let alone differentiate between superior security selection and market timing ability. Based on 10 years of comprehensive account-level data comprising 61 million trades made by investors in Taiwan’s retail-dominated futures market, the authors confirm that institutions consistently earn alpha at the expense of behaviorally biased individual traders. The authors introduce an approach for separating overconfident traders from skilled market timers. This novel skill measure interacts prior performance with past trading volume. Investors identified as highly skilled subsequently earn a net-of-cost average annual return of 115%. The authors’ results contribute in two ways: (1) introducing a new measure for assessing high-frequency trading skill and (2) validating the intuition that significant alpha can be harvested by active investors in retail-dominated markets. <b>TOPICS:</b>Futures and forward contracts, emerging markets, manager selection, performance measurement <b>Key Findings</b> ▪ The authors employ comprehensive data on 61 million individual trades made by investors in Taiwan’s financial futures market over a 10-year period to confirm that behaviorally biased retail investors consistently lose to institutional investors. ▪ They demonstrate weak performance persistence and a nonlinear relationship between past trading volume and future performance, characterized by overconfidence on the part of a vast majority of traders and rational learning about skill by the most active traders. ▪ The authors describe a method for inferring true market timing ability from a combination of data on prior performance and past trading volume and identify a small subset of skilled traders who subsequently earn extraordinary profits after accounting for transaction costs.

Ability parity model for optimal fund allocation: Evidence from China's mutual fund markets

We propose in this article a novel ability parity model for optimal fund allocation. Compared with the traditional portfolio selection methods which directly work on asset returns and/or risk (volatility), the proposed ability parity method focuses mainly on the allocation between the stock selection ability and market timing ability of fund managers, which essentially determines fund performance (Fama, 1972). Using the data of China's mutual fund markets, we find strong and robust evidence that the proposed ability parity model delivers significantly higher return, skewness, and Sharpe ratio than traditional models and the benchmark index, while having volatilities comparable with traditional models.

MANAGERIAL ABILITIES AND FACTOR INVESTMENT STYLE PERFORMANCES OF MALAYSIAN MUTUAL FUND MANAGERS

Background and Purpose: Studies focusing on mutual fund managerial abilities and investment style strategies are still scarce in the literature. Thus, this study aims to provide new evidence and insights into the managerial abilities and investment style performances of Malaysian fund managers.&#x0D; &#x0D; Methodology: A total of 444 Malaysian equity mutual funds (EMFs) were evaluated using Carhart’s model incorporated with Treynor-Mazuy (T-M) and Henriksson-Merton (H-M) market timing models for the study period, from January 1995 to December 2017.&#x0D; &#x0D; Findings: Fund managers displayed superior stock selection skills with 32 percent and 43 percent of funds for T-M and H-M respectively, with perverse market timing ability which accounted for 39 percent and 42 percent of funds for T-M and H-M respectively. Perverse timing ability had reduced the superior stock-picking skills of fund managers. This suggests that the EMFs performance could further improve if respective fund managers perform better in market timing ability. The finding also indicates that size effect (SMB) and value effect (HML) play significant roles in investment style strategies, while results of momentum factor (WML) propose that Malaysian fund managers have followed the contrarian strategy.&#x0D; &#x0D; Contributions: This study contributes in several ways especially in the literature of portfolio management as the evidence is obtained from the largest mutual funds sample size and the longest study period. Moreover, this study also used the highest frequency data to study the effects of market timing which were overlooked in previous studies.&#x0D; &#x0D; Keywords: Adjusted carhart, Malaysian market, market timing, mutual fund, stock selection.&#x0D; &#x0D; Cite as: Ling, P-S., &amp; Abdul-Rahim, R. (2021). Managerial abilities and factor investment style performances of Malaysian mutual funds. Journal of Nusantara Studies, 6(1), 118-135. http://dx.doi.org/10.24200/jonus.vol6iss1pp118-135

Network Centrality and Managerial Market-Timing Ability

AbstractWe document that long-run excess returns following announcements of share buyback authorizations and insider purchases are a U-shaped function of firm centrality in the input–output trade-flow network. These results conform to a model of investors endowed with a large but finite capacity for analyzing firms. Additional links weaken insiders’ informational advantage in peripheral firms (simple firms whose cash flows depend on few economic links), provided investors’ capacity is large enough, but eventually amplify that advantage in central firms (firms with many links) as a result of investors’ limited capacity. These findings shed light on the sources of managerial market-timing ability.

An Examination of Hedge Funds Performance Persistence

We check for performance persistence of hedge funds in terms of market price average returns in each style category. In addition, we use regression models to test market timing ability. We use a sample of 773 hedge funds both alive and dead to avoid survivorship, self-selection and backfill bias. We include in our sample funds that have stopped to exist or merged with other funds. Positive returns indicate that the manager is skillful in terms of share picking ability. In addition, I am going to test for market timing ability to measure if the fund manager can outperform the market index. The market timing ability is verified using the Treynor – Mazuy (1966) model and denoted by the coefficient gamma. If the coefficient is positive this indicates that the manager has superior timing ability. Based on my regression results, all out of the nine style sectors display a coefficient of market timing ability that is positive and not statistically significant at 5% level. No sectors showed superior timing market ability. Negative values represent inferior or neutral managerial performance. None out of the nine style categories display negative figures. All nine style sectors display positive figures for the share average returns. Positive returns indicate that the manager is skillful in terms of share picking ability.

SELECTIVITY AND MARKET TIMING ABILITY OF MUTUAL FUND HOUSES IN EMERGING COUNTRIES

The paper investigates the selectivity and market timing ability of fund houses in emerging countries. The study uses comprehensive performance models on fund houses from four emerging countries. Data span is from 2007 to 2018. Findings indicate that fund managers benefit from the common facilities provided by the fund houses like market research, diversification and investment opportunity. Fund houses showed good selectivity skills but poor market timing ability. The possible reason is that fund houses manage large and different types of funds. This resulted in more complex management processes and thus reduced the ability to track the fluctuations in the market. The findings are important for investors as they are able to allocate their resources more effectively to funds that are best managed by fund houses while for managers, they are able to position themselves relative to their competing peers.

Measuring the selectivity and market timing performance of Islamic mutual funds in the KSA

This paper examines the selectivity and market timing abilities of Islamic fund managers in the Kingdom of Saudi Arabia (KSA), since the empirical research has yet to explore the profitability and investment risk factors involved. We use a uniquely large set of data for 134 Islamic funds for a period from June 2002 to December 2019, and this was free from any survival bias. We found that Islamic fund managers in the KSA demonstrated good selectivity skills but no market timing ability. We also found that Islamic fund managers in the KSA tend to select companies with aggressive investment patterns despite their low profitability.

A Research Analysis of Hedge Funds Performance Persistence

The existing literature of performance persistence of hedge funds is mixed due to different methodologies and findings. We use a comprehensive sample of 736 hedge funds to test performance persistence in different time periods. The total sample includes 773 hedge funds. We sort funds into rank portfolios based on past performance. A positive and statistically significant alpha indicates a skilled fund manager whose decisions add value to the fund. On the other hand, negative alpha values or statistically insignificant values represent inferior or neutral performance of the manager. The results show short-term performance persistence over one year period for winners. Nine style categories show a positive and statistically significant alpha at the 5% significance level and market timing ability for winners the first 12 months. We did not find any evidence of performance persistence over the long-term. All the remaining years such as the third, the fifth, and the twelfth show insignificant alpha and market timing ability for both winners and losers. The persistence of winners could be justified by the skill of the fund managers and market timing ability to predict the movement of the market.

Predicting the relative performance of actively managed equity mutual funds using diverse performance evaluation techniques

Mutual fund performance evaluation has seen an ever-growing interest for research amongst industry and academicians alike. In this paper an attempt has been made to compare and correlate global actively managed equity mutual funds’ performance across time intervals, to evaluate and establish how predicting future performance can be made meaningful for investors using analysis of historical data based on monthly net asset values (NAVs) (March 2009–March 2021). Of the top 500 global equity mutual funds based on market-cap (on March 31, 2021), the paper evaluated 180 actively managed funds adding up to approximately USD 5 trillion of the fund assets as of March 31, 2021. The research gap which the paper aims to fill is to bring under one umbrella, prediction analysis using performance measures, downside risk measures, style factor analysis, and market timing models. For sampled equity funds various performance ratios and style attributes were computed and compared across periods for their relative performance. Relative performance was found to be stable (at 1% significance level) across periods and hence predictable. A portfolio of funds constructed optimally using historical performance was seen to be in the top quartile ex-post performance in the subsequent period. However, it was found that the market timing abilities of fund managers were unstable across periods and could not be used for predicting performance. Based on the study findings, it would be appropriate for investors to use the relative past performance of the funds and their style attribute analysis for the future allocation of investible surplus across these funds

What Drives Asset Holdings? Commonality in Investor Demand

I empirically show that changes in investor holdings exhibit a low-dimensional factor structure that is economically interpretable. Using an extended version of Instrumented Principal Components Analysis (IPCA), I model changes in a large sample of sector-level investor holdings and recover latent factors and sector-specific loadings on the factors. I find that the recovered factors reflect the state of the macroeconomy and financial constraints of investors. Investor loadings on the factors reveal partially pro-cyclical trading behavior of the banking sector and of mutual funds, while hedge funds and pension funds act partially counter-cyclically. In addition, I document that the set of characteristics relevant for explaining changes in holdings is likely wider than implied by common risk factor models. Finally, using the decomposition of holdings changes implied by IPCA, I demonstrate asset pricing effects consistent with institutional price pressures from banks and mutual funds, as well as market-timing ability of investment advisors that is unrelated to common asset characteristics.

Stock Selectivity Skill, Market Timing Ability, Risiko, Size, and Comparison of Performance Islamic Share Mutual Funds

Indonesia is one of the countries with the largest Muslim population about 87%. The high population of the Muslim in Indonesia should be able to provide great potential in terms of Islamic finance as investment activity, which will certainly contribute positively to the Indonesian economy. Investors will always be interested in investment with high return and low risk. One of the alternative is mutual fund especially sharia equity mutual funds. The choice of the right mutual fund should pay attention to how the performance of the mutual fund. This study examine how performance of sharia equity mutual funds using Sharpe, Treynor and Jensen method are affected by stock selectivity skill, market timing ability, risk and size during 2012-2017. The finding of this research are stock selectivity skill,market timing ability, risk and size are significantly positive influence to the performance of sharia equity mutual fund. The influence of stock selectivity skill, market timing ability, risk and size are very strong if measured by treynor method.