| Abstract: | The performance of pooled superannuation funds is analysed within a framework that recognises that risk management or ‘market timing’ is an important aspect of the fund manager's decision-making. Two broad appraoches to the issue of ‘market timing’ are adopted: first, the performance evaluation model developed by Henriksson and Merton 1981] which allows for return differentials to arise from both security selection and market timing; and second, the recursive residuals methodology of Brown, Durbin and Evans 1975] which identifies points in chronological time when the risks of the funds underwent a change. The results indicate that only 5 out of 16 funds had significant shifts in their risk over the period of the study, all of which occurred in late 1986 to early 1987. It follows that the usual Jensen measure of performance is inappropriate for these funds since one component of their performance is due to market timing activities. The return performance of these market timing activities is significantly negative for 15 to 16 funds indicating that their timing ability is perverse. To some extent this is an artifact of the market crash of October 1987 and that all funds had a positive exposure to equities. However, due to their asset allocation policies all funds are assigned significantly positive security selection performance. |
