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Conditional Market Timing with Benchmark Investors

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Author Info
Connie Becker
Wayne Ferson
David Myers
Michael Schill

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Abstract

This paper tests models of mutual fund market timing that (1) allow the manager's utility function to depend on returns in excess of a benchmark; (2) distinguish timing based on lagged, publicly available information variables from timing based on finer information; and (3) simultaneously estimate the parameters which describe the public information environment, the risk aversion and the precision of the fund's market timing signal. Using a sample of more than 400 U.S. mutual funds for 1976-94, the estimates imply that mutual funds behave as risk averse, benchmark investors. Conditioning on public information variables improves the model specification, and after controlling for the public information we find no evidence that funds have significant market timing ability.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6434.

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Date of creation: Feb 1998
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Handle: RePEc:nbr:nberwo:6434

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References listed on IDEAS
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Full references

Cited by:
(explanations, 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.)

  1. Wayne E. Ferson & Campbell R. Harvey, 1999. "Conditioning Variables and the Cross-Section of Stock Returns," NBER Working Papers 7009, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Michael E. Drew, 2007. "Superannuation: Switching and Roulette Wheels," School of Economics and Finance Discussion Papers and Working Papers Series 216, School of Economics and Finance, Queensland University of Technology. [Downloadable!]
  3. Charles P. Thomas & Francis E. Warnock & Jon Wongswan, 2006. "The Performance of International Equity Portfolios," NBER Working Papers 12346, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Heber Farnsworth & Wayne E. Ferson & David Jackson & Steven Todd, 2002. "Performance Evaluation with Stochastic Discount Factors," NBER Working Papers 8791, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Charles P. Thomas, 2006. "The Performance of International Equity Portfolios," The Institute for International Integration Studies Discussion Paper Series iiisdp162, IIIS. [Downloadable!]
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  7. Juan Pedro Gomez, 2007. "The impact of benchmarking and portfolio constraints on a fund manager´s market timing ability," Working Papers Economia wp07-02, Instituto de Empresa, Area of Economic Environment. [Downloadable!]
  8. Basak, Suleyman & Pavlova, Anna & Shapiro, Alex, 2006. "Optimal Asset Allocation and Risk Shifting in Money Management," CEPR Discussion Papers 5524, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Wayne Ferson & Kenneth Khang, 2002. "Conditional Performance Measurement Using Portfolio Weights: Evidence for Pension Funds," NBER Working Papers 8790, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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