Assessing Selectivity and Market Timing Performance of Mutual Funds for an Emerging Market: The Case of Turkey

This paper derives and analyzes the selectivity and market timing performance of the mutual funds for the Turkish economy for the financial crisis period by employing high-frequency data. The determinants of these derived abilities are investigated within a regression analysis. The results suggest weak evidence about selection ability and some evidence about superior market timing quality. They also indicate that management fees are negatively correlated with the ability measure, which is quite surprising. Experience emerges as an important factor, especially for market timing ability.     

The Market Timing Ability of UK Mutual Funds

Abstract:  We apply a recent nonparametric methodology to test the market timing skills of UK equity and balanced mutual funds. The methodology has a number of advantages over the widely used regression based tests of Treynor-Mazuy (1966) and Henriksson-Merton (1981) . We find a relatively small number of funds (around 1%) demonstrate positive market timing ability at a 5% significance level while around 19% of funds exhibit negative timing and on average funds miss-time the market. However, controlling for publicly available information we find very little evidence of market timing ability based on private timing signals. In terms of investment styles, there are a small number of successful positive market timers amongst Equity Income and 'All Company' funds but not among either Small Stock funds or Balanced funds, although a few small stock funds are found to time a small stock index rather than a broad market index.     

Asset Allocation and Selectivity of Asian Mutual Funds During Financial Crisis

This paper evaluates the ability of US-based Asian mutual fund managers in coping with the 1997 Asian financial crisis. We find that the actively managed mutual funds under-perform with respect to the market portfolio by 1.71% in average monthly return. Such poor performance is caused by fund managers' relative weakness in country selection as well as in stock picking. Fund managers are also found to be more skillful in picking the correct market when the market is going up than going down. Our results are consistent with the literature that asset allocation in Asian mutual funds is a dominating factor relative to selectivity in explaining fund returns during the financial crisis. In addition, there exists a negative relation between asset allocation ability and selectivity of fund managers.     

Seasonality, Market Timing and Performance Amongst Benchmarks and Mutual Fund Evaluation

Abstract:  Mutual fund performance is normally measured by comparing results of active management with those obtained by one or several benchmarks that should represent the fund's investment. In this context, this paper examines the effect on mutual fund assessment if a relevant benchmark is omitted. This effect is analysed in three elements of active management: stock selection, market timing, and seasonality. The latter is defined as fund management at specific moments of time with the objective of achieving positive abnormal returns to improve performance. For a sample of Spanish mutual funds, we find that the omission of style benchmarks, particularly that corresponding to small-cap stocks, leads to greater evidence of negative market timing and positive seasonality at year beginning. However, the positive abnormal returns of the seasonality at year end, month end and especially at the beginning of July hold regardless of benchmark omission. The paper therefore also analyses the relation between performance and seasonality, finding that positive seasonality at year beginning and at July beginning improves performance; however, at other moments it implies a possible window dressing strategy in mutual fund management.     

Seasonal Patterns in Money Market Mutual Funds

This study analyzes seasonal patterns in tax-exempt and taxable money market mutual fund yields. We document a significant increase in tax-exempt and taxable yields during the last three weeks of December, followed by a significant decrease in yields during the first three weeks of January. The yield changes are associated with a corresponding outflow of fund assets at the end of the year and inflow of assets in the beginning of the year. We also find that tax-exempt yields change systematically around the 15th of April, June and September, which are key individual income tax dates. These results are consistent with liquidity effects associated with year-end wages, dividends, and bonus payments and tax-effects. We also find that institution window dressing contributes to the year-end movements in taxable and tax-exempt fund yields. One implication is that municipalities planning to issue short-term notes and investors in these funds can time their actions to take advantage of these systematic yield changes.     

我国证券投资基金业的结构、行为及绩效研究

我国基金业的市场结构正由寡占型向竞争型转变，这对规范和完善我国基金业的市场行为起了一定的积极作用。但是，本文通过实证研究发现，政府管制性壁垒和不合理的费率制度在我国基金公司带来高额利润的同时，并没有给投资者带来相应的投资回报；传统的有效结构假说和共谋假说对我国的基金业均不成立，而修正的有效结构假说能较好地反映我国基金业的市场绩效与市场结构之间的相关关系，本文最后提出了相关建议。     

The Performance of Actively Managed International Mutual Funds

International mutual funds allow individual investors to diversify abroad at a reasonable cost. This paper tests whether international funds that actively engage in country and security selection outperform passive global benchmarks. We apply a mean-variance efficiency test that incorporates the practical prohibition against short sales of open-end mutual funds. Our tests reject the efficiency of the world equity market portfolio over the sample period, and our funds as a group outperform the inefficient world index. However, we find no evidence of security selectivity ability using a 12-country benchmark. We do find that active international funds provide global diversification benefits. Tests using the Positive Period Weight (PPW) measure of Grinblatt and Titman (1989), which is robust to nonlinearity in fund and benchmark returns, yield similar results.     

The Performance Persistence of Closed-End Funds

The purpose of this study is to extend the research on mutual fund performance persistence to net asset value and market price performance of domestic closed‐end funds. While research has assessed the performance persistence of open‐end mutual funds, it has not assessed the performance persistence of closed‐end funds. Yet, the unique characteristics of closed‐end funds allow stronger arguments for their persistence than the arguments previously submitted for open‐end mutual funds. The results show evidence for risk‐adjusted performance persistence.     

Mutual fund liquidity timing ability in the higher moment framework

Using mutual fund data in Thailand, this study shows that fund managers can time the market-wide liquidity in the higher moment framework. High-performing fund managers demonstrate significantly positive liquidity timing ability, while low-performing fund managers do not. Thus, high-performing fund managers increase (decrease) the funds' exposure to the market during a high (low) market liquidity period, while low-performing fund managers do not show the liquidity timing ability. Moreover, only top-performing bank-related mutual funds possess the liquidity timing ability, supporting the information advantage hypothesis. Nonbank-related funds do not possess the liquidity timing ability at both the aggregate and portfolio levels. Several robustness tests confirm the findings.     

Motivation and Performance of Seasoned Offerings by Closed-End Funds

We examine the motivation and performance of closed‐end funds that engage in seasoned public or rights offerings. We find that closed‐end funds are more motivated to engage in seasoned offerings when their shares exhibit a relatively high premium (compared to their corresponding NAV) and have a high degree of liquidity. We also find a significant negative valuation effect on average in response to seasoned offerings by closed‐end funds. Our cross‐sectional analysis reveals that the valuation effect at the time of the seasoned offering is more unfavorable for funds that have relatively high expense ratios and are relatively large. Furthermore, we find that the closed‐end funds experience significant negative valuation effects over the three‐year period subsequent to the seasoned offering, implying poor post‐offering performance.     

Risk-Adjusted Performance of Mutual Funds: Evidence from China

In this article, we evaluate the performance of mutual funds in China between 2006 and 2014. We first estimate time-varying abnormal returns of each mutual fund using an active peer benchmark-augmented factor pricing model. An index of riskiness is then estimated and used to calculate the augmented performance measure (APM). By construction, the APM separates the managerial premium of the fund from systematic risk premium, so it is better than the economic performance measure. The APM incorporates information beyond the first and second moments of the distribution of fund abnormal return; therefore, it is more informative than the Sharpe ratio.     

Exploiting International Stock Market Correlations with Open-end International Mutual Funds

Investors can exploit the correlations between international stock markets by trading no-load, open-end, international mutual funds. These investors in effect cheat passive investors because they buy the mutual funds at their net asset values, which do not reflect information released during the US trading day. The strategy we examine yields an annual rate of return 800 basis points above the S&P500, over a period of almost eight years.     

An Intertemporal CAPM Approach to Evaluate Mutual Fund Performance

Merton (1973) and Campbell (1993) have demonstrated that if an investor anticipates information shifts, he will adjust his portfolio choice today in an attempt to hedge these shifts. Exploiting these insights, we construct a new performance measure to evaluate fund managers' hedging ability. This new measure is different from two widely adopted performance evaluation measures: securities selectivity and market timing. Moreover, an econometric methodology is developed to simultaneously estimate the magnitudes of these three portfolio performance evaluation measures. The results show that mutual fund managers are on average with positive security selection and negative market timing ability. Furthermore, the mutual funds with investment style classified as Asset Allocation generally have positive hedging timing ability.     

Relative Performance Evaluation of Mutual Funds: A Non-Parametric Approach

We propose an alternative mutual fund performance index which addresses the benchmark problem and controls for economies of scale in managing mutual funds. We advance a new concept of 'return-cost' efficiency as another important element in evaluating portfolio management, in addition to the mean-variance efficiency concept. Our index based on a non-parametric estimation is shown to be similar to the Sharpe index with multiple slopes (or factors). We have shown that all fund categories, except income funds, have similar average efficiency scores after controlling for economies of scale. Most funds operate in increasing returns to scale and seem to be successful in holding mean-variance efficient portfolios, but unsuccessful in allocating transaction costs efficiently, evidenced by excessive turnovers and loads.     

Running From a Bear: How Poor Stock Market Performance Affects the Determinants of Mutual Fund Flows

Abstract:  Using a proprietary data set to study how past performance affects the determinants of mutual fund flows for a sample of load fund investors, I provide evidence that the determinants of fund flow depend on market conditions for both redemptions and purchases. Specifically, I show that, for redemptions, relative performance and risk adjusted performance are important determinants during a period of record flows into mutual funds. Conversely, during a period of poor performance, absolute performance becomes much more important and relative performance and risk adjusted performance become less important. For purchases, absolute performance, risk adjusted performance, and most relative performance measures become more important during the bear market.     

International mutual fund selectivity and market timing during up and down market conditions

This study examines the selectivity and market-timing ability of international mutual fund managers. Ninety-seven international mutual funds with a minimum of five-year return history selected from the Morningstar OnDisc database are analyzed. Our findings suggest that managers of international mutual funds possess good selectivity and overall performance. We also find weak evidence of poor market-timing ability. Consistent with prior findings from domestic mutual funds, there is a negative correlation between the international fund managers' selection ability and market-timing ability. Finally, managers for Europea funds show poorer performance than those managing the other three international fund groups.     

Risk Transmission from Oil and Natural Gas Futures to Emerging Market Mutual Funds

This study evaluates the impacts of energy markets on emerging market mutual funds (EMMFs). In particular, we investigate the volatility transmission between these funds and the oil and natural gas prices. The findings suggest significant risk spillover from the energy markets to EMMFs. Furthermore, we find a large number of EMMFs’ risk transmitting to oil prices and almost all of the EMMFs’ risk transmitting to natural gas prices. By dividing the sample into two (before and after 2008), we find the EMMFs’ influence on the oil market decreasing after this turbulent period. Our results have important implications for mutual fund managers and investors.     

Performance of Enhanced Index and Quantitative Equity Funds

We examine the performance of enhanced index and quantitative equity funds. Both types of funds use quantitative models in investment selection. Enhanced index funds set an explicit objective to outperform a benchmark index. Proponents of quantitative funds argue that their management style takes human emotions out of the investment decision‐making process and leads to more objective stock selection. We find evidence of outperformance by quantitatively managed growth funds, especially those investing in small cap stocks.