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Market Timing : A Decomposition of Mutual Fund Returns

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  • Swinkels, L.A.P.

    (Tilburg University, School of Economics and Management)

  • van der Sluis, P.J.

    (Tilburg University, School of Economics and Management)

  • Verbeek, M.J.C.M.

    (Tilburg University, School of Economics and Management)

Abstract

We decompose the conditional expected mutual fund return in five parts. Two parts, selectivity and expert market timing, can be attributed to manager skill, and three to variation in market exposure that can be achieved by private investors as well. The dynamic model that we use to estimate the relative importance of the components in the decomposition is a generalization of the 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 inferences about manager selectivity and timing skill. The results from our sample of 78 asset allocation mutual funds indicate that several funds exhibit significant expert market timing, but for most funds variation in market exposures does not yield any economically significant return. Funds with high turnover and expense ratios are associated with managers with better skills.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Swinkels, L.A.P. & van der Sluis, P.J. & Verbeek, M.J.C.M., 2003. "Market Timing : A Decomposition of Mutual Fund Returns," Other publications TiSEM 5b546da3-eaab-4bcf-be9c-5, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:5b546da3-eaab-4bcf-be9c-502b2e895003
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    References listed on IDEAS

    as
    1. Christopherson, Jon A & Ferson, Wayne E & Glassman, Debra A, 1998. "Conditioning Manager Alphas on Economic Information: Another Look at the Persistence of Performance," The Review of Financial Studies, Society for Financial Studies, vol. 11(1), pages 111-142.
    2. Alexander, Gordon J. & Benson, P. George & Eger, Carol E., 1982. "Timing Decisions and the Behavior of Mutual Fund Systematic Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(4), pages 579-602, November.
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    7. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock‐Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, vol. 55(4), pages 1655-1695, August.
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    More about this item

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G3 - Financial Economics - - Corporate Finance and Governance
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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