The forecasting ability of world mutual funds
Abstract
Purpose
The paper aims to empirically examine the forecasting ability of US-based world mutual funds during the 2001-2007 time period.
Design/methodology/approach
World mutual funds are treated as portfolios composed of two sets of securities, i.e. domestic and foreign and two methodologies are used to measure forecasting ability: domestic differential exposure and assertion rates. Domestic differential exposure is based on the difference between each fund exposure to the domestic market when it is the outperforming market and the portfolio exposure to the domestic market when the foreign market is outperforming. Similar to the differential exposure, assertion rates measure the ability of fund managers to pick, on a monthly basis, an outperforming market.
Findings
Although changing economic conditions in both domestic and foreign markets provided plenty of opportunities to outperform market benchmarks, the results of two empirical tests reveal that fund managers fail to effectively manage their exposure to both markets. Some evidence of good forecasting ability is found when funds are examined on a yearly basis.
Originality/value
This study provides the first implementation of both methodologies: domestic differential exposure and assertion rates, to examine global funds.
Keywords
Acknowledgements
JEL classification – G11, G15The author would like to thank the Business Administration Faculty and the Office of the Dean for Graduates Studies and Research at the University of Puerto Rico for their support. The research assistance of Herminio Romero is greatly appreciated.
Citation
Rodriguez, J. (2014), "The forecasting ability of world mutual funds", Studies in Economics and Finance, Vol. 31 No. 2, pp. 130-140. https://doi.org/10.1108/SEF-11-2012-0126
Publisher
:Emerald Group Publishing Limited
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