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Market timing: A global endeavor

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  • Rodri­guez, Javier
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    Abstract

    This paper employs daily fund and index data, the classical Treynor and Mazuy timing model, and two multi-factor extensions to measure the market timing ability of global asset allocation funds. These funds differ from traditional global or international funds in that they face fewer investment constraints and are known to actively shift funds across a wide variety of asset classes. When using the classical Treynor and Mazuy timing models, I find evidence of poor market timing ability. However, this evidence disappears when timing ability is examined using two multi-factor models. The results from Treynor and Mazuy are spurious since both multi-factor extensions do a much better job in explaining the variation in average fund returns.

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    File URL: http://www.sciencedirect.com/science/article/B6VGT-4PN05PT-1/2/8956258feb874c8a4823cb62777b1dc1
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

    Volume (Year): 18 (2008)
    Issue (Month): 5 (December)
    Pages: 545-556

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    Handle: RePEc:eee:intfin:v:18:y:2008:i:5:p:545-556

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    Web page: http://www.elsevier.com/locate/intfin

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    1. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    2. Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1996. "The Persistence of Risk-Adjusted Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 69(2), pages 133-57, April.
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    4. Livingston, Miles & O'Neal, Edward S, 1998. "The Cost of Mutual Fund Distribution Fees," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 21(2), pages 205-18, Summer.
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    6. Glassman, Debra A. & Riddick, Leigh A., 2006. "Market timing by global fund managers," Journal of International Money and Finance, Elsevier, vol. 25(7), pages 1029-1050, November.
    7. Volkman, David A, 1999. "Market Volatility and Perverse Timing Performance of Mutual Fund Managers," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 22(4), pages 449-70, Winter.
    8. Blake, Christopher R & Elton, Edwin J & Gruber, Martin J, 1993. "The Performance of Bond Mutual Funds," The Journal of Business, University of Chicago Press, vol. 66(3), pages 370-403, July.
    9. Lehmann, Bruce N & Modest, David M, 1987. " Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American Finance Association, vol. 42(2), pages 233-65, June.
    10. Bhargava, Rahul & Gallo, John G & Swanson, Peggy E, 2001. " The Performance, Asset Allocation, and Investment Style of International Equity Managers," Review of Quantitative Finance and Accounting, Springer, vol. 17(4), pages 377-95, December.
    11. George Comer, 2006. "Hybrid Mutual Funds and Market Timing Performance," The Journal of Business, University of Chicago Press, vol. 79(2), pages 771-798, March.
    12. Bruce N. Lehmann & David M. Modest, 1987. "Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," NBER Working Papers 1721, National Bureau of Economic Research, Inc.
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