Do mutual funds time the market? Evidence from portfolio holdings |
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Authors: | George J Jiang Tong Yao Tong Yu |
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Institution: | 1. Eller College of Management, University of Arizona, Tucson, AZ 85721, USA;2. College of Business Administration, University of Rhode Island, Kingston, RI 02881, USA |
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Abstract: | Previous research finds insignificant market-timing ability for mutual funds using tests based on fund returns. The return-based tests, however, are subject to the “artificial timing” bias. In this paper, we propose and implement new measures of market timing based on mutual fund holdings. Our holdings-based measures do not suffer from the artificial timing bias. We find that, on average, actively managed U.S. domestic equity funds have positive timing ability. Market timing funds use non-public information to predict market returns, tend to have high industry concentration, large fund size, a tilt toward small-cap stocks, and are active in industry rotation. |
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Keywords: | G10 G11 |
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