Search results
1 – 10 of over 23000Phillip W. Balsmeier and James S. Broussard
The current and ongoing controversy that has come to be known as the “Mutual Fund Scandal of 2003” was based in large part on abusive market timing activities that were allowed to…
Abstract
The current and ongoing controversy that has come to be known as the “Mutual Fund Scandal of 2003” was based in large part on abusive market timing activities that were allowed to occur in select mutual funds. There are many ways in which amarket timer can steal profits through short‐term trading activities but the primary opportunity arises in those mutual funds that invest in foreign shares of stock. This 2004 article looks at a sampling of those mutual funds that invest in companies based in the United Kingdom and evaluates the potential for abusive market‐timing activities.
Details
Keywords
Venessa S. Tchamyou, Simplice A. Asongu and Jacinta C. Nwachukwu
The purpose of this paper is to investigate the effects of information asymmetry (between the realized return and the expected return) on market timing in the mutual fund industry.
Abstract
Purpose
The purpose of this paper is to investigate the effects of information asymmetry (between the realized return and the expected return) on market timing in the mutual fund industry.
Design/methodology/approach
For the purpose, the authors use a panel of 1,488 active open-end mutual funds for the period 2004-2013. The authors use fund-specific time-dynamic betas. The information asymmetry is measured as the standard deviation of idiosyncratic risk. The data set is decomposed into five market fundamentals in order to emphasis the policy implications of the findings with respect to: equity, fixed income, allocation, alternative, and tax-preferred mutual funds. The empirical evidence is based on endogeneity-robust difference and system generalized method of moments.
Findings
The following findings are established. First, the information asymmetry broadly follows the same trend as volatility, with a higher sensitivity to market risk exposure. Second, fund managers tend to raise (cutback) their risk exposure in time of high (low) market liquidity. Third, there is evidence of convergence in equity funds. The authors may, therefore, infer that equity funds with lower market risk exposure are catching-up with their counterparts with higher exposure to fluctuation in market conditions.
Originality/value
The paper complements the sparse literature on market timing in the mutual fund industry with time-dynamic betas, information asymmetry and an endogeneity-robust empirical approach.
Details
Keywords
Mahfooz Alam and Valeed Ahmad Ansari
This paper investigates the style timing and liquidity style timing vis-à-vis the market, size, value and momentum factors of the actively managed Indian equity mutual funds.
Abstract
Purpose
This paper investigates the style timing and liquidity style timing vis-à-vis the market, size, value and momentum factors of the actively managed Indian equity mutual funds.
Design/methodology/approach
We examine the style timing of the funds using the augmented Carhart four-factor model by incorporating timing measures (Treynor and Mazuy; Henriksson and Merton). Based on this, the study explores the four-factor liquidity and volatility style timing exhibited by fund managers. The sample is from April 2000 to March 2018 and spans the volatile 2008 subprime economic crises. The sample comprised 182 actively managed equity funds from various sizes and was considered to be a well-diversified sample.
Findings
The results of our study provide strong evidence of market liquidity timing in India. No other style timing skills are observed in our analysis. Our results also imply that the fund managers might misidentify size timing as market timing if integrated liquidity timing measures are not employed, leading to false conclusions.
Research limitations/implications
The findings of our study imply that the fund managers might misidentify size timing as market timing if integrated liquidity timing measures are not employed, leading to false conclusions.
Originality/value
This study, to our knowledge, is the first attempt to investigate the portfolio-based style timing in the Indian context.
Details
Keywords
Nuno Manuel Veloso Neto, Júlio Fernando Seara Sequeira da Mota Lobão and Elisabete Simões Vieira
This study aims to evaluate the performance of the Portuguese fund managers by examining the selectivity and market timing skills of 51 Portuguese mutual funds from June 2002 to…
Abstract
Purpose
This study aims to evaluate the performance of the Portuguese fund managers by examining the selectivity and market timing skills of 51 Portuguese mutual funds from June 2002 to March 2012.
Design/methodology/approach
The authors assess empirically the performance of a sample of funds by applying the unconditional and conditional models of Treynor and Mazuy (1966) and Henriksson and Merton (1981).
Findings
The results suggest that, overall, the Portuguese mutual funds do not possess selectivity or timing skills. However, regardless of the model used, the domestic equity funds exhibit a statistically significant market timing ability. Furthermore, the domestic and North American equity funds display positive selectivity during bull markets and timing skills during bear markets. Additionally, there is some evidence that older funds are better stock pickers than younger funds.
Research limitations/implications
To address some of the limitations of this study, the authors suggest for further research correcting the Treynor and Mazuy (1966) model for the convexity cost of replicating Merton’s (1981) option approach. Additionally, for further research, we suggest using a bigger sample, higher frequency data, as such data may lead to higher frequency of timing ability as proposed by Bollen and Busse (2001). To overcome some of the limitations of traditional models, future research may consider using Jiang’s (2003) nonparametric test, as it is not affected by manager’s risk aversion, or Ferson and Khang (2002) conditional performance evaluation using portfolios holdings.
Originality/value
The authors contribute to the current literature by extending the period of study to 10 years in comparison to previous studies; extending the sample of funds to 51; addressing, for the first time in this context, the importance of public information on funds’ performance, through the comparison of unconditional and conditional models of Treynor and Mazuy’s (1966) and Henriksson and Merton’s (1981); and, for the first time in the Portuguese context, analysing the relationship between funds’ size, age and market cycles and selectivity and market timing skills.
Details
Keywords
Hale Yalcin and Sema Dube
The authors examine whether Turkish fund managers employ liquidity timing along with market return timing, and if additional economic and market factors could affect their timing…
Abstract
Purpose
The authors examine whether Turkish fund managers employ liquidity timing along with market return timing, and if additional economic and market factors could affect their timing abilities, to help explain the contradictory results in literature vis-a-vis market timing ability.
Design/methodology/approach
The authors apply panel data analyses, with interaction terms and incorporating structural breaks, to monthly data for 96 out of 131 Turkish variable mutual funds which have available data for the sample period of 2011–2018. The authors employ the Amihud (2002) illiquidity measure to study market liquidity timing ability along with how additional economic and market factors affect this ability.
Findings
The authors find liquidity timing to be the performance enhancing method employed by Turkish variable fund managers in conjunction with market timing and that evidence for market timing may depend on whether structural breaks, that may be present in returns, are incorporated in the analysis. The authors also find that economic, technology and market-related factors affect timing abilities of fund managers.
Research limitations/implications
Conclusions are for Turkey, for the sample period studied, and for the control factors selected based on literature.
Practical implications
It is important to understand the role of market liquidity in making investment decisions and the paper contributes toward an understanding of how managers design their timing strategies in order to enhance portfolio performance, as well as the impact of additional factors on their ability to time market returns and liquidity. This is also important for evaluating fund managers' performance in terms of contribution to portfolio value.
Originality/value
To the authors knowledge this is the first study on Turkish markets to employ liquidity timing in the context of panel data analyses using interaction terms, as well as structural breaks, to distinguish the extent of liquidity timing from return timing, while incorporating the effect of additional factors on timing ability.
Details
Keywords
The mutual fund market timing scandal and continuing investigative probes read like a Greek tragedy. It is beyond comprehension how senior investment management executives would…
Abstract
The mutual fund market timing scandal and continuing investigative probes read like a Greek tragedy. It is beyond comprehension how senior investment management executives would become willing accomplices in fleecing their clients’ assets, impairing their portfolio managers’ investment returns and destroying the reputations of some of the industry’s greatest fiduciary brands. This paper looks at the systemic roots of the scandal and how Canary Capital Partners enlisted the help of Bank of America Securities Executives to market time the bank’s inhouse mutual funds in violation of SEC forward pricing regulations.
Details
Keywords
Drosos Koutsokostas and Spyros Papathanasiou
The purpose of this paper is to examine the performance of Greek equity mutual funds for the period 2012-2016, analyzing further the selectivity and market timing ability, and…
Abstract
Purpose
The purpose of this paper is to examine the performance of Greek equity mutual funds for the period 2012-2016, analyzing further the selectivity and market timing ability, and short-term performance persistence for the period 2015-2016.
Design/methodology/approach
Utilizing a survivorship-bias-controlled sample of 25 funds and daily data, the authors use single-index (Jensen, 1968) and multi-factor (Carhart, 1997) models to evaluate risk-adjusted returns using the General Index of Athens Stock Exchange as a benchmark. The Treynor-Mazuy (1966) and Henriksson-Merton (1981) models are used to assess the stock selection and market timing abilities of fund managers. In order to investigate short-term performance persistence, the authors implement a variety of parametric (Bollen and Busse, 2005) and nonparametric tests (Malkiel, 1995; Brown and Goetzmann, 1995; Kahn and Rudd, 1995).
Findings
Results show that the funds underperformed the General Index, mainly due to the managers’ market timing inability. Furthermore, weak evidence for short-term performance persistence has been documented.
Research limitations/implications
Checking for performance persistence, it was impossible to rank funds and form deciles according to their estimated abnormal returns, as in Bollen and Busse (2005), due to the small number of mutual funds operating in Greece.
Originality/value
Empirical studies regarding the performance of Greek equity mutual funds are still limited. Therefore, this paper intends to fill this gap by providing further evidence of performance evaluation.
Details
Keywords
To emphasize the need for financial services companies such mutual funds and brokerage houses to establish internal controls and related procedures for identifying potential…
Abstract
Purpose
To emphasize the need for financial services companies such mutual funds and brokerage houses to establish internal controls and related procedures for identifying potential conflicts of interest.
Design/methodology/approach
Reviews government investigations into scandals involving the mutual fund industry over the past two years, including late trading, marketing timing, revenue sharing, directed brokerage, and gift‐giving; notes that criminal prosecution in this area is infrequent but still possible; and recommends, given the current landscape, that financial services companies examine their procedures for identifying and eliminating conflicts of interest.
Findings
Concludes that recent mutual fund scandals have changed the regulatory landscape and the regulators, and in some cases prosecutors, are committed to aggressively pursuing any possible impropriety or conflict of interest between mutual fund advisors and the investing public.
Originality/value
Provides a useful review of recent mutual fund scandals for the purpose of demonstrating to fund managers and directors why they should review their controls and related procedures to identify and eliminate conflicts of interest.
Details
Keywords
The purpose of this paper is to present and demonstrate how the use of a multifactor model in the analysis of market timing skill can be misleading because the use of a…
Abstract
Purpose
The purpose of this paper is to present and demonstrate how the use of a multifactor model in the analysis of market timing skill can be misleading because the use of a multifactor model does not suit all investment styles equally well. If the factors of the analysis model do not span the portfolio holdings of a fund with less conventional investment strategy, the use of a multifactor model may even deteriorate the overall inference in measuring the market timing skill of a large sample of funds.
Design/methodology/approach
This study investigates the limitations of multifactor models in the analysis of market timing skill by applying the traditional Treynor-Mazuy and Henriksson-Merton analysis models of market timing skill using a set of “placebo” funds which are “natural” passive market timers.
Findings
The results of the study show that the incorporation of the Carhart four-factor model into the analysis of market timing skill considerably reduces the percentage of significant market timing results. But, as expected, the reduction of bias is not equal for different investment styles, and it works best when the factors of the analysis model are related to the investment style of the placebo portfolio.
Practical implications
This style-related limitation of multifactor models in the analysis of market timing skill may result in detecting funds with less conventional investment strategies as market timers since the factors used in the analysis are not likely to span their investment styles.
Originality/value
This study shows that the use of a multifactor model may lead to inferring passive market timers with less conventional investment styles as market timers. In addition, the findings of the study leave option replication approaches as more preferable bias corrections than multifactor extensions.
Details
Keywords
The paper seeks to examine whether selectivity and timing performance of fund manager is sensitive to the choice of market benchmarks. The two benchmarks used are the Kuala Lumpur…
Abstract
Purpose
The paper seeks to examine whether selectivity and timing performance of fund manager is sensitive to the choice of market benchmarks. The two benchmarks used are the Kuala Lumpur Composite Index (KLCI) and the Exchange Main Board All‐Share (EMAS) Index.
Design/methodology/approach
The paper seeks to employed Jensen's model to estimate the overall fund performance and Henriksson and Merton's model to separate the fund manager's investment performance into the selectivity and market‐timing components.
Findings
The findings indicate that, on average, the funds display negative overall performance with either the KLCI or the EMAS Index. In addition, there is little variation in the manager's market‐timing and selectivity performance across alternative market benchmarks. It is also reported that a manager's poor timing ability contributes significantly to the fund's negative overall performance.
Research limitations/implications
The paper employed just two market benchmarks. Inclusion of more market benchmarks in future research may provide further support for the existing findings.
Practical implications
Regardless of the market benchmarks used, the results imply that fund managers should seriously reassess their market timing efforts, given that their predictions are very often in the wrong direction than in the right direction. Such findings suggest that no economic benefit accrues to the average fund manager involved in market‐timing activities.
Originality/value
The paper provides first evidence on the sensitivity of a fund manager's separate investment components (timing and selectivity) to different specification of the market benchmarks.
Details