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Effects of asymmetric information on market timing in the mutual fund industry

Author

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  • Tchamyou, Vanessa
  • Asongu, Simplice
  • Nwachukwu, Jacinta

Abstract

The paper investigates the effects of information asymmetry (between the realised return and the expected return) on market timing in the mutual fund industry. For the purpose, we use a panel of 1488 active open-end mutual funds for the period 2004-2013. We use fund-specific time-dynamic betas. Information asymmetry is measured as the standard deviation of idiosyncratic risk. The dataset is decomposed into five market fundamentals in order to emphasis the policy implications of our findings with respect to (i) equity, (ii) fixed income, (iii) allocation, (iv) alternative and (v) tax preferred mutual funds. The empirical evidence is based on endogeneity-robust Difference and System Generalised Method of Moments. The following findings are established. First, information asymmetry broadly follows the same trend as volatility, with a higher sensitivity to market risk exposure. Second, fund managers tend to raise (cutback) their risk exposure in time of high (low) market liquidity. Third, there is evidence of convergence in equity funds. We may therefore infer that equity funds with lower market risk exposure are catching-up with their counterparts with higher exposure to fluctuation in market conditions. The paper complements the scarce literature on market timing in the mutual fund industry with time-dynamic betas, information asymmetry and an endogeneity-robust empirical approach.

Suggested Citation

  • Tchamyou, Vanessa & Asongu, Simplice & Nwachukwu, Jacinta, 2018. "Effects of asymmetric information on market timing in the mutual fund industry," MPRA Paper 87870, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:87870
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    References listed on IDEAS

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    Cited by:

    1. Simplice A. Asongu & Jacinta C. Nwachukwu & Sara le Roux, 2018. "The role of inclusive development and military expenditure in modulating the effect of terrorism on governance," AFEA Working Papers 18/022, African Finance and Economic Association (AFEA).
    2. Simplice A. Asongu & Nicholas M. Odhiambo, 2018. "Environmental Degradation and Inclusive Human Development in sub†Saharan Africa," Research Africa Network Working Papers 18/017, Research Africa Network (RAN).
    3. Asongu, Simplice A. & Odhiambo, Nicholas M., 2019. "Governance and social media in African countries: An empirical investigation," Telecommunications Policy, Elsevier, vol. 43(5), pages 411-425.
    4. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Taxation, foreign aid and political governance in Africa," CEREDEC Working Papers 19/020, Centre de Recherche pour le Développement Economique (CEREDEC).
    5. Simplice A. Asongu, Phd & Joseph Nnanna D.B.A, . "Ict In Reducing Information Asymmmetry For Financial Sector Competition," Journal of Economic and Sustainable Growth 1, Office Of The Chief Economist, Development Bank of Nigeria.
    6. Simplice A. Asongu & Nicholas M. Odhiambo, 2018. "Information asymmetry, financialization, and financial access," International Finance, Wiley Blackwell, vol. 21(3), pages 297-315, December.
    7. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Remittances, the Diffusion of Information and Industrialisation in Africa," Working Papers 19/024, European Xtramile Centre of African Studies (EXCAS).
    8. Simplice A. Asongu & Nicholas M. Odhiambo, 2018. "Information asymmetry, financialization, and financial access," International Finance, Wiley Blackwell, vol. 21(3), pages 297-315, December.
    9. Asongu, Simplice & Odhiambo, Nicholas, 2019. "Enhancing ICT for Quality Education in Sub-Saharan Africa," MPRA Paper 93531, University Library of Munich, Germany.
    10. Simplice A. Asongu, 2019. "Financial Access and Productivity Dynamics in Sub-Saharan Africa," Working Papers 19/052, European Xtramile Centre of African Studies (EXCAS).
    11. Simplice A. Asongu & Rexon T. Nting & Evans S. Osabuohien, 2019. "One Bad Turn Deserves Another: How Terrorism Sustains the Addiction to Capital Flight in Africa," Journal of Industry, Competition and Trade, Springer, vol. 19(3), pages 501-535, September.
    12. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Environmental degradation and inclusive human development in sub‐Saharan Africa," Sustainable Development, John Wiley & Sons, Ltd., vol. 27(1), pages 25-34, January.
    13. Asongu, Simplice A & Odhiambo, Nicholas M, 2019. "Foreign direct investment,information technology and economic growth dynamics in Sub-Saharan Africa," Working Papers 25593, University of South Africa, Department of Economics.
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    15. Simplice Asongu & Christelle Meniago, 2018. "Technology and persistence in global software piracy," Netnomics, Springer, vol. 19(1), pages 43-63, October.
    16. Simplice A. Asongu, 2019. "Technology, Education, Life and Non-life Insurance in Africa," Working Papers 19/048, European Xtramile Centre of African Studies (EXCAS).
    17. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Environmental degradation and inclusive human development in sub‐Saharan Africa," Sustainable Development, John Wiley & Sons, Ltd., vol. 27(1), pages 25-34, January.
    18. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Size, efficiency, market power, and economies of scale in the African banking sector," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-22, December.

    More about this item

    Keywords

    Information asymmetry; Mutual funds; Market timing; Market uncertainty;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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