Market Timing Performance Research Articles

Selectivity and Market-Timing Performance of Mutual Funds Using Human-Capital Augmented Various Asset-Pricing Models: Evidence from Pakistan

This study demonstrates the selectivity skills and market-timing ability performance of funds mangers through various sophisticated augmented asset pricing models. The results indicate better performance for selectivity and market-timing ability of fund managers but unexpectedly after adjusting size and value factors into the specifications, both demonstrate insignificant findings. It also investigates the nexus between various risk-adjusted factors including market, size, value, momentum and human-capital sixth-factor, with the excess portfolio mutual funds returns using sample of 120 open-ended mutual funds monthly data for the time span of 16 years 2005-2020. The simple and multivariate time-series OLS regression approaches are employed to investigate the nexus between various factors and mutual funds returns. The findings of the study evidenced statistically significant nexus of market, size and value factors with mutual funds returns while insignificant results for human-capital and momentum factors. Moreover, based on GRS test, the average absolute alpha of Income-Growth augmented CAPM is closer to zero therefore, assumed to be the best model among the risk-adjusted completing asset pricing models in mutual funds.

Insiders’ characteristics and market timing capabilities: buying and selling evidence

PurposeThis paper aims to study individual managers’ market timing capabilities while trading (either buying or selling) stock from their portfolios, as well as the impact of gender, seniority and trading frequency on their market timing performance.Design/methodology/approachThis study uses a relative transaction price approach introduced by Dittmar and Field (2015) on 837 aggregated trades made by managers from their portfolios between 2010 and 2015. These were taken from publicly disclosed information through the Portuguese regulator. Furthermore, this study uses a median regression-based method to infer the authors’ conclusions.FindingsThe authors find that insiders buy (sell) at a relatively lower (higher) price when compared to other traders. This evidence shows that insiders have market timing capabilities. Moreover, this paper shows that contrarily to gender, both seniority and frequency help explain market timing performance and that insiders’ trades made over-the-counter (OTC) generally overperform the ones made on the open market (OM). Finally, this study finds a significant crisis-related influence on insiders’ market timing performance.Originality/valueThis study contributes to the literature by studying insider trading at the portfolio level, by analyzing the impact of personal characteristics of insiders (including gender, tenure and eagerness), focusing both on studying the buying and selling behavior across both OMs and OTC and analyzing firsthand the impact of a macroeconomic shift on insider trading performance.

Market-timing performance of mutual fund investors in Emerging Markets

This paper empirically investigates the performance of market-timing strategies effectively used by investors in Emerging Markets (EMs). We identify short-term determinants of mutual fund flows into EM equity and fixed income, finding a well-established flow-performance relation. Hence, we verify whether investors make good timing decisions with a statistic hereafter referred to as “performance gap”. We find that the average performance gap is negative and statistically significant for all funds. It is equal to −0.05% per month for equity and −0.06% for fixed income. Although gaps remain negative regardless of the strategy declared by the fund manager, corporate and growth funds exhibit the worst performance.

Are Monthly Market Returns Predictable?

We document significant persistence in the market timing performance of active individual investors, suggesting that some investors are skilled at timing. Using data on all trades by active Finnish individual investors over almost 15 years, we also show that the net purchases of skilled versus unskilled investors predict monthly market returns. Our results lend credibility to the view that market returns are predictable, without having to specify which variables active investors use to successfully time the market. (JEL G10, G11, G12, G14, G15).

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.

Trading performance and market efficiency: Evidence from algorithmic trading

In India, National Stock Exchange directly identifies algorithmic trading participation. Algorithmic traders possess intraday market timing skills. Results are not motivated by extreme short-term signals or transitory price trading. Magnitude of market timing performance in cross-sectional group of traders shows that they earn profit across all the cases, and maximize while providing liquidity. Volume-weighted-average-price decomposition analysis reports algorithmic traders earn profits through intraday market timing performance for five-minute and one-minute intervals, and it is higher compared to short-term market timing performance across all trader groups. Order imbalance and price delay regressions show that algorithmic trading significantly improves price efficiency.

Market-Timing Performance of Mutual Fund Investors in Emerging Markets

This paper empirically investigates the performance of market-timing strategies effectively used by investors in Emerging Markets (EMs). We identify short-term determinants of mutual fund flows into EM equity and fixed income, finding a well-established flow-performance relation. Hence, we verify whether investors make good timing decisions with a statistic hereafter referred to as “performance gap”. We find that the average performance gap is negative and statistically significant for all funds. It is equal to -0.05% per month for equity and -0.06% for fixed income. Although gaps remain negative regardless of the strategy declared by the fund manager, corporate and growth funds exhibit the worst performance.

Revealed Preferences of Mutual Fund Investors in Good and Bad Times

Recent works demonstrate that the Capital Asset Pricing Model (CAPM) alpha is most likely used by investors as the performance measure in mutual fund. I explore the validity of this claim in different market conditions and show that the CAPM is only preferred by investors in good times, but it fails against the simple model (fund return minus market return) in bad times. Fund characteristics and investor sophistication cannot explain the pattern. The time-varying fund flow sensitivity to different fund performance components matters. Decomposing the fund return measured by this simple model into the CAPM alpha and a component proxy for market timing performance, I find that the fund flow sensitivity to market timing performance is countercyclical.

Reexamining the Market Timing Ability of Equity Funds in China—Cash-Flow and Discount-Rate Perspective

With the development of China’s stock market, equity mutual funds are playing a more and more important role in shaping the market. However, with some many funds in the present market, which ones are able to predict the future market movements and adjust the risk exposure of their fund portfolios correspondingly to make reasonable return faced by various market conditions? Based on the former study, this paper uses a new method to reexamine the market-timing ability of open-end, equity funds in China, that is, to decompose the market-timing ability into cash-flow timing and discount rate timing. This differentiation provides a more specific metric to measure the funds’ market timing performance besides rate of return, T-M measure and H-M measure, etc. The empirical study reveals that on average, Chinese equity fund managers can bring about 0.58% excess return per year when timing the aggregate stock market, but it is not significant at any reasonable levels. However, the writer finds there have significant timing skill in Chinese equity fund managers who can predict the changes of discount rate and it is highly unlikely to find an equity fund that can make continuous positive return as it declares. Therefore, it is hard for a common investor to make abnormal returns through investing capital in the mutual funds for a long time.

Market Timing and Time Frequency

This paper shows the usefulness of selecting the appropriate time frequency to examine mutual fund market timing. Using a sample of daily returns for the UK, we find evidence of the benefit to increase the temporal frequency of the observations to estimate market timing as results present a greater significance when we use daily data in the analysis. We show that using daily instead of monthly observations increases the number of significant estimates of market timing ability. This suggests that the return frequency is important when examining mutual funds market timing performance. Another conclusion we can draw from this study is the small proportion of mutual funds that manage to beat the market by performing correct timing strategies, thus the UK mutual fund market confirms the conclusion from previous studies in another markets.

Measuring Selectivity and Market Timing Performance of Mutual Funds in Indonesia Using Single and Dual Beta Models

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Glamour versus value, market timing and firm performance: evidence from mergers and acquisitions

This study examines the performance of glamour versus value firms in M&As. Specifically, the current study takes into account the market timing to explore the performance of glamour versus value firms in M&As. Using the standard event study methodology with 1109 targets and 6980 bidders during the 2000–2013 period, the results show that glamour (value) firms are more likely to choose the hot (cold) market condition to engage in M&As for both targets and bidders. The evidence also reveals that the performance of glamour versus value firms is less sensitive to the market timing for targets. While glamour bidding firms obtain lower announcement returns, the losses are even more significant during long run post-announcement period. A further analysis indicates that bidders in general experience negative announcement returns in the hot market irrespective of glamour versus value firms. While glamour bidding firms obtain lower post-announcement returns in the hot market relative to their value counterparts, glamour bidders generate higher post-announcement returns during the cold market than value bidders. The regression analysis finds consistent results for bidders. Overall, this study sheds lights on the importance of the market timing on the performance of glamour versus value firms in M&As.

The Market-Timing Ability of Chinese Equity Securities Investment Funds

This study examines the market-timing performance of Chinese equity securities investment funds during the period from May 2003 to May 2014 using the parametric tests of Treynor–Mazuy and Henriksson–Merton as well as the Jiang non-parametric test. Based on the non-parametric approach, the study finds that only one fund among the sample of 419 funds possessed statistically significant market-timing skill, while 9% of the funds were statistically significant negative market timers. Most funds do not time the market. This conclusion is robust when controlling for publicly available information in evaluating ‘private’ timing ability. Consistent with studies of other markets such as the UK, a higher prevalence of successful market timers is found by the Treynor–Mazuy and Henriksson–Merton methods compared to the non-parametric procedure.

Investments, Market Timing and Portfolio Performance across Indian Bull and Bear Markets

The returns generated from an investment alternative are exponentially higher when espoused with appropriate timings. This article expound on the market timing used by investors to formulate profitable investment strategies in the stock market, which requires gathering of information at both micro- and macro-levels along with market trends to make timely decisions and evaluating the universe of stocks available. The market trends are been broadly classified into bull and bear phases, which have dynamic influence on buying and selling in the stock market. Further, the study supports the retail investors’ participation in the market for long-term to generate higher returns as compared to other conventional alternatives. The study attempts to identify bull and bear market turning points using a formal turning point identification procedure and formulate a profitable investment strategy in bull or bear market phases to maximise the returns. Hence, the present study provides to understand how the two phases influence investment decisions and determine the implications of bull and bear market phases on investors’ investment strategy.

They Would If They Could: Assessing the Bindingness of the Property Holding Constraints for REITs

AbstractThis study examines the bindingness of the property holding constraints which Real Estate Investment Trusts (REITs) face on their portfolios (the dealer rule), and illustrates how these constraints hinder REITs from exploiting opportunities to time the property market. I first simulate a set of filter‐based market timing strategies, which outperform a buy‐and‐hold strategy out of sample, and show that imposing a four‐year (or even the newer two‐year) holding constraint significantly reduces the excess returns the strategies generate. I then analyze actual holding periods of properties in REIT portfolios and find that there seems to exist a large degree of demand for short property holding periods and that the trades generated by the filter strategy generally resemble actual REIT trading activity, validating the relevance of the simulation results. A direct test for the constraint reveals that REITs' propensity to hold a property beyond the minimum period increases, the higher the profit from the transaction, consistent with the asymmetric nature in which the rule is enforced. By contrast, this effect is insignificant for Umbrella‐Partnership REITs (UPREITs), which are not as affected by the constraint. I further show that UPREITs overall achieve significantly better ex‐post market timing performance than non‐UPREITs. I thus find that overall REITs are limited by the dealer rule.

Market timing and stock selection performance of mutual fund in bull and bear market condition

This study aims to measure the performance of stock mutual fund in Indonesia by using a Paramita model. This study used a sample of 30 stock mutual funds, which were actively traded in the period 2008-2012. The study period was divided into two periods: economic crisis and after economic crisis. The results showed that on the crisis period, during the bull market, the majority of stock mutual funds in Indonesia have the best performance of market timing and stock selection. While in the bear market, several mutual fund only have the best performance of market timing, but bad performance of stock selections. But on after crisis period, most of the mutual funds indicate bad performance of market timing in bull and bear market conditions. But in the bull market conditions, most of the mutual funds were showed a good performance of stock selections.

Market timing and stock selection performance of mutual fund in bull and bear market condition

This study aims to measure the performance of stock mutual fund in Indonesia by using a Paramita model. This study used a sample of 30 stock mutual funds, which were actively traded in the period 2008-2012. The study period was divided into two periods: economic crisis and after economic crisis. The results showed that on the crisis period, during the bull market, the majority of stock mutual funds in Indonesia have the best performance of market timing and stock selection. While in the bear market, several mutual fund only have the best performance of market timing, but bad performance of stock selections. But on after crisis period, most of the mutual funds indicate bad performance of market timing in bull and bear market conditions. But in the bull market conditions, most of the mutual funds were showed a good performance of stock selections.

The Market-Timing Ability of Chinese Equity Securities Investment Funds

This study examines the market-timing performance of Chinese equity securities investment funds during the period from May 2003 to May 2014 using the parametric tests of Treynor–Mazuy and Henriksson–Merton as well as the Jiang (2003) non-parametric test. Based on the non-parametric approach, the study finds that only one fund among the sample of 419 funds possessed statistically significant market-timing skill, while 9% of the funds were statistically significant negative market timers. Most funds do not time the market. This conclusion is robust when controlling for publicly available information in evaluating ‘private’ timing ability. Consistent with studies of other markets such as the UK, a higher prevalence of successful market timers is found by the Treynor–Mazuy and Henriksson–Merton methods compared to the non-parametric procedure.

International sign predictability of stock returns: The role of the United States

We study the directional predictability of monthly excess stock market returns in the U.S. and ten other markets using univariate and bivariate binary response models. We introduce a new bivariate (two-equation) probit model that allows us to examine the benefits of predicting the signs of returns jointly, focusing on the predictive power originating from the U.S. to foreign markets. Our in-sample and out-of-sample forecasting results indicate superior predictive performance of the new model over competing univariate binary response models, and conventional predictive regressions, by statistical measures and market timing performance. This highlights the importance of predictive information from the U.S. to the other markets providing also practical improvement in investors' market timing decisions.

The investment performance, attributes, and investment behavior of ethical equity mutual funds in the US: an empirical investigation

This paper examines the investment performance of US ethical equity mutual funds relative to the market and their traditional counterparts using a survivorship-bias-free database. We detect selectivity and market timing performance of fund managers using two models. First, we use Treynor and Mazuy’s (Harv Bus Rev 44:131–136, 1966) model to determine these performances from a quadratic regression of fund returns on market returns. Second, we use a comprehensive and integrated model derived by Bhattacharya and Pfleiderer (A note on performance evaluation. Technical Report 714, Stanford, California, Stanford University, Graduate School of Business, 1983) and Lee and Rahman (J Bus 63:261–278, 1990) to simultaneously capture stock selection and market timing skill of fund managers. This model extracts timing skill from the relationship between managers’ forecast and realized market return. In addition, the R2 approach developed by Amihud and Goyenko (Rev Financ Stud 26:667–694, 2013) for evaluating selectivity is also used in this paper. Our empirical results indicate that ethical funds perform no worse than their traditional counterparts, although ethical and traditional funds do not outperform the market. We find some evidence of superior security selection and/or market timing skill among a very small number of ethical and traditional funds. It appears that matching traditional funds have slightly more abnormal (superior as well as inferior) performance than ethical funds in our sample.