The Market Timing Ability of UK Mutual Funds

We apply a recent nonparametric methodology to test the market timing skills of UK equity and balanced mutual funds. The methodology has a number of advantages over the widely used regression based tests of Treynor‐Mazuy (1966) and Henriksson‐Merton (1981). We find a relatively small number of funds (around 1%) demonstrate positive market timing ability at a 5% significance level while around 19% of funds exhibit negative timing and on average funds miss‐time the market. However, controlling for publicly available information we find very little evidence of market timing ability based on private timing signals. In terms of investment styles, there are a small number of successful positive market timers amongst Equity Income and ‘All Company’ funds but not among either Small Stock funds or Balanced funds, although a few small stock funds are found to time a small stock index rather than a broad market index.