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 flows-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 for all funds and equal to -0.06% per month for equity and -0.05% for fixed income. Although gaps remain negative regardless of the investment strategy declared by the fund manager, corporate funds and value funds exhibit the worst timing performance. In order to confirm that our results are e↵ectively driven by the goodness of one or the other strategy, instead than by the actual performance of the market, we simulate a sample of 1,000 funds finding that simulated data are consistent with actual results.