Market timing: A decomposition of mutual fund returns
AbstractWe decompose the conditional expected mutual fund return in five parts. Two parts, selectivityand expert market timing, can be attributed to manager skill, and three to variation in marketexposure that can be achieved by private investors as well. The dynamic model that we use toestimate the relative importance of the components in the decomposition is a generalization ofthe performance evaluation models by Lockwood and Kadiyala (1988) and Ferson and Schadt(1996). We find that the restrictions imposed in existing models may lead to different inferencesabout manager selectivity and timing skill. The results from our sample of 78 asset allocationmutual funds indicate that several funds exhibit significant expert market timing, but for mostfunds variation in market exposures does not yield any economically significant return. Fundswith high turnover and expense ratios are associated with managers with better skills.
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Bibliographic InfoPaper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2003-074-F&A.
Date of creation: 20 Oct 2003
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performance evaluation; mutual funds; market timing; pensioenfondsen;
Other versions of this item:
- Swinkels, L.A.P. & Sluis, P.J. van der & Verbeek, M.J.C.M., 2003. "Market Timing: A Decomposition of Mutual Fund Returns," Discussion Paper 2003-95, Tilburg University, Center for Economic Research.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-12-07 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Siem Jan Koopman & Neil Shephard & Jurgen A. Doornik, 1999.
"Statistical algorithms for models in state space using SsfPack 2.2,"
Royal Economic Society, vol. 2(1), pages 107-160.
- Neil Shephard & Jurgen Doornik & Siem Jan Koopman, 1998. "Statistical algorithms for models in state space using SsfPack 2.2," Economics Series Working Papers 1998-W06, University of Oxford, Department of Economics.
- Koopman, S.J.M. & Shephard, N. & Doornik, J.A., 1998. "Statistical Algorithms for Models in State Space Using SsfPack 2.2," Discussion Paper 1998-141, Tilburg University, Center for Economic Research.
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