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Article
Publication date: 15 February 2013

Qiang Bu and Nelson Lacey

The purpose of this study is to examine the markettiming ability of mutual fund flows and how fund investors conduct asset allocation in response to market volatility.

Abstract

Purpose

The purpose of this study is to examine the markettiming ability of mutual fund flows and how fund investors conduct asset allocation in response to market volatility.

Design/methodology/approach

The paper compares the abnormal returns of net inflow funds with those of net outflow funds, and it explores the performance gap between them based on a model that incorporates both market return timing and market volatility timing. The asset allocation pattern of fund investors and its relation to market volatility are also investigated.

Findings

This study finds that funds that receive net money inflows fail to earn risk‐adjusted abnormal returns, while funds with net outflows earn statistically significant negative abnormal returns. Neither the net inflow funds nor the net outflow funds show any ability to time the market return, but there is some evidence that net inflow funds exhibit an ability to time market volatility. Because cash holdings of the net outflow funds are much lower than that of the net inflow funds, it is concluded that the underperformance of net outflow funds is to an extent an asset fire sale.

Research limitations/implications

The study results show that fund investors on the whole are driven by market volatility, and they do not have an ability to time the market return. The results do not exclude the possibility that a small number of investors possess market timing skills.

Originality/value

The study demonstrates the importance of funds' liquidity management through investor reaction to dynamic market conditions.

Details

Review of Accounting and Finance, vol. 12 no. 1
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 1 August 2004

Phillip 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…

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 markettiming activities.

Details

Management Research News, vol. 27 no. 8/9
Type: Research Article
ISSN: 0140-9174

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Book part
Publication date: 27 June 2014

Xin Li and Hany A. Shawky

Good market timing skills can be an important factor contributing to hedge funds’ outperformance. In this chapter, we use a unique semiparametric panel data model capable…

Abstract

Good market timing skills can be an important factor contributing to hedge funds’ outperformance. In this chapter, we use a unique semiparametric panel data model capable of providing consistent short period estimates of the return correlations with three market factors for a sample of Long/Short equity hedge funds. We find evidence of significant market timing ability by fund managers around market crisis periods. Studying the behavior of individual fund managers, we show that at the 10% significance level, 17.12% of funds exhibit good linear timing skills and 21.32% of funds possess some level of good nonlinear market timing skills. Further, we find that market timing strategies of hedge funds are different in good and bad markets, and that a significant number of managers behave more conservatively when the market return is expected to be far above average and more aggressively when the market return is expected to be far below average. We find that good market timers are also likely to possess good stock selection skills.

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Signs that Markets are Coming Back
Type: Book
ISBN: 978-1-78350-931-7

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Book part
Publication date: 11 November 2014

Tatiana Albanez and Gerlando Augusto Sampaio Franco de Lima

According to the market timing theory, firms try to take advantage of windows of opportunity to raise capital by exploiting temporary cost fluctuations of alternative…

Abstract

Purpose

According to the market timing theory, firms try to take advantage of windows of opportunity to raise capital by exploiting temporary cost fluctuations of alternative financing sources. In this context, the main objective of this paper is to examine the influence and persistence of market timing in the financing decisions of Brazilian firms that launched IPOs in the period from 2001 to 2011.

Methodology/approach

We analyze the influence of past market values on the capital structure of these firms, based on the main models proposed by Baker and Wurgler (2002), adapted to reflect the characteristics of Brazilian firms’ financial statements.

Findings

We find evidence of market timing, but this behavior is not sufficiently persistent in the period studied to the point of determining these firms’ capital structure. We believe the fact that Brazilian companies rarely carried out follow-on primary equity issues after floating their capital in the period analyzed, due to the presence of more advantageous financing sources (particularly from the national development bank, BNDES), explains the results. Therefore, Brazilian firms appear to be pay heed to different funding sources, in search of windows of opportunity, to guide their financing decisions and determine their capital structures.

Originality/value

The Brazilian capital market has been developing intensely in recent years, making it increasingly relevant to analyze the financing and investment decisions of the country’s listed companies. The Brazilian literature on capital structure is extensive, but few works have addressed the issue of market timing.

Details

Emerging Market Firms in the Global Economy
Type: Book
ISBN: 978-1-78441-066-7

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Abstract

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Servitization Strategy and Managerial Control
Type: Book
ISBN: 978-1-78714-845-1

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Book part
Publication date: 8 April 2005

Petri Suomala

The essential investments in new product development (NPD) made by industrial companies entail effective management of NPD activities. In this context, performance…

Abstract

The essential investments in new product development (NPD) made by industrial companies entail effective management of NPD activities. In this context, performance measurement is one of the means that can be employed in the pursuit of effectiveness.

Details

Managing Product Innovation
Type: Book
ISBN: 978-1-84950-311-2

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Book part
Publication date: 29 August 2018

Paul A. Pautler

The Bureau of Economics in the Federal Trade Commission has a three-part role in the Agency and the strength of its functions changed over time depending on the…

Abstract

The Bureau of Economics in the Federal Trade Commission has a three-part role in the Agency and the strength of its functions changed over time depending on the preferences and ideology of the FTC’s leaders, developments in the field of economics, and the tenor of the times. The over-riding current role is to provide well considered, unbiased economic advice regarding antitrust and consumer protection law enforcement cases to the legal staff and the Commission. The second role, which long ago was primary, is to provide reports on investigations of various industries to the public and public officials. This role was more recently called research or “policy R&D”. A third role is to advocate for competition and markets both domestically and internationally. As a practical matter, the provision of economic advice to the FTC and to the legal staff has required that the economists wear “two hats,” helping the legal staff investigate cases and provide evidence to support law enforcement cases while also providing advice to the legal bureaus and to the Commission on which cases to pursue (thus providing “a second set of eyes” to evaluate cases). There is sometimes a tension in those functions because building a case is not the same as evaluating a case. Economists and the Bureau of Economics have provided such services to the FTC for over 100 years proving that a sub-organization can survive while playing roles that sometimes conflict. Such a life is not, however, always easy or fun.

Details

Healthcare Antitrust, Settlements, and the Federal Trade Commission
Type: Book
ISBN: 978-1-78756-599-9

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Article
Publication date: 10 June 2020

Mushtaq Muhammad, Chu Ei Yet, Muhammad Tahir and Abdul Majid Nasir

This study aims to investigate how the timing behavior affects the capital structure decisions of South Asian family firms. A strand of literature is available based on…

Abstract

Purpose

This study aims to investigate how the timing behavior affects the capital structure decisions of South Asian family firms. A strand of literature is available based on the capital structure of firms in general but inconsistent with family businesses framework and not from market timing outlook. This study looks at the issues from the market timing perspectives of both equity and debt market timing.

Design/methodology/approach

The sample of the study is the listed family firms of India, Pakistan and Bangladesh. The firm-level data are collected from Thomson Reuters' DataStream and the ownership data collected from the countries' stock exchanges and financial statements of the family firms.

Findings

The results show that there is strong support for the market timing in the family firms' capital structure. Moreover, the financial crisis of 2007–2009 surprisingly had a positive effect on the capital structure of South Asian family business.

Originality/value

This study looks at the issues from the market timing perspectives of both equity and debt market timing. It provides evidence for supporting the equity and debt market timing effect on the capital structure and financing decision of family firms. It also addresses the impact of the 2007–2009 financial crisis on the capital structure of family firms.

Details

Journal of Family Business Management, vol. 11 no. 1
Type: Research Article
ISSN: 2043-6238

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Content available
Article
Publication date: 10 March 2020

Lamia Mabrouk and Adel Boubaker

The purpose of this study is to explore at what stage of a company’s life cycle the theory of market timing has explained debt. Drawing on a unified conceptual framework…

Abstract

Purpose

The purpose of this study is to explore at what stage of a company’s life cycle the theory of market timing has explained debt. Drawing on a unified conceptual framework of market timing theory, the authors scrutinize the impact of life cycle and ownership structure on the market condition.

Design/methodology/approach

Based on a sample of 24 Tunisian companies listed on the stock exchange and 100 French firms listed on the CAC All-Tradable on a 10-year period, this paper grounded the market timing theory and attempted to clear the relation between ownership structure, life cycle of the firm and market timing theory by statistical analysis.

Findings

The findings of panel data modeling indicate that when the life cycle was used as an explanatory variable, it was found that the variable reflecting the market timing is not significant in either context; it means that no significant support is found in the theory of market timing in both countries. Whereas when the life cycle was used as a dummy variable, it was found that the life cycle has an impact on debt only in the Tunisian context.

Practical implications

This study has several important implications for researchers and practitioners. The findings reported here clarify the strength of the impact of life cycle on the market timing, when it explains the debt in the two contexts and the impact of ownership structure such as the managerial ownership and concentration of capital on debt.

Originality/value

This study contributes to examine the theory of debt in different phases of life cycle. Focused on the case of Tunisian and French firms, this study is unique and valuable.

Details

Asia Pacific Journal of Innovation and Entrepreneurship, vol. 14 no. 1
Type: Research Article
ISSN: 2071-1395

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Article
Publication date: 1 June 2015

Praveen K. Das and S. P. Uma Rao

The purpose of this paper is to examine the market timing and stock selection abilities of socially responsible (SR) mutual funds. Some high-profile SR fund managers try to

Abstract

Purpose

The purpose of this paper is to examine the market timing and stock selection abilities of socially responsible (SR) mutual funds. Some high-profile SR fund managers try to embrace market timing and security selection plans to add value to the performance. Market timing relies on forecasting the equity market and shifting assets into or out of the market in anticipation of market movements. The selectivity measure assesses fund managers ability to select undervalued securities. Furthermore, the authors examine whether fund characteristics play any role in market timing and security selection ability.

Design/methodology/approach

The authors use Treynor and Mazuy's’ (1966) and Henriksson and Mertons’ (1981) model to examine the market timing and security selection ability. The study uses a decade of monthly returns to examine the skills of fund managers in the SR industry for the period from July 2002 to June 2012.

Findings

The main findings are that the managers – though not very successful – do indulge in stock selection and market timing activities. It was found that 48 funds have positive statistically significant stock selectivity coefficients and only a very small number of five funds with positive statistically significant market timing coefficients. Results suggest that there is a trade-off between the two activities. It was found that aggressive funds, funds with higher growth rate and riskier funds are more likely to engage in market timing rather than stock selection.

Practical implications

The implication is that SR managers cannot achieve superior stock selection and market timing ability simultaneously. Risk-averting investors in SR funds expect SR behavior from the managers. This means that managers of SR funds, with very little evidence of market timing ability, may have to refrain from market timing of SR funds.

Originality/value

Using a Morningstar dataset comprising almost all SR funds in existence as of June 2012, this is probably the most exhaustive long-term study to date on market timing and stock selection abilities of SR fund managers.

Details

Social Responsibility Journal, vol. 11 no. 2
Type: Research Article
ISSN: 1747-1117

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