The Market Timing Ability of UK Equity Mutual Funds

Cuthbertson, K., O'Sullivan, N. & Nitzsche, D. (2007). The Market Timing Ability of UK Equity Mutual Funds. SSRN.

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We apply a recent nonparametric methodology to test the market timing skills of UK equity 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 1.5%) demonstrate positive market timing ability at a 5% significance level, while around 10-20% of funds exhibit negative (perverse) timing and most funds do not time the market. Our findings indicate that the few skillful market timers possess private market timing signals so their performance cannot be attributed to publicly available information. In terms of fund classifications, there are a small number of successful positive market timers amongst equity income and general equity funds, while a few small company funds time a small company rather than a broad market index. We also apply regression based tests of volatility timing and find evidence that a slightly larger (around 5%) of funds successful time market volatility.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Mutual funds performance, market timing
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
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