On Market Timing, Stock Picking, and Managerial Skills of Mutual Fund Managers with Manipulation-Proof Performance Measure

Background and Purpose: Studies focusing on mutual fund managerial abilities and investment style strategies are still scarce in the literature. Thus, this study aims to provide new evidence and insights into the managerial abilities and investment style performances of Malaysian fund managers. Methodology: A total of 444 Malaysian equity mutual funds (EMFs) were evaluated using Carhart’s model incorporated with Treynor-Mazuy (T-M) and Henriksson-Merton (H-M) market timing models for the study period, from January 1995 to December 2017. Findings: Fund managers displayed superior stock selection skills with 32 percent and 43 percent of funds for T-M and H-M respectively, with perverse market timing ability which accounted for 39 percent and 42 percent of funds for T-M and H-M respectively. Perverse timing ability had reduced the superior stock-picking skills of fund managers. This suggests that the EMFs performance could further improve if respective fund managers perform better in market timing ability. The finding also indicates that size effect (SMB) and value effect (HML) play significant roles in investment style strategies, while results of momentum factor (WML) propose that Malaysian fund managers have followed the contrarian strategy. Contributions: This study contributes in several ways especially in the literature of portfolio management as the evidence is obtained from the largest mutual funds sample size and the longest study period. Moreover, this study also used the highest frequency data to study the effects of market timing which were overlooked in previous studies. Keywords: Adjusted carhart, Malaysian market, market timing, mutual fund, stock selection. Cite as: Ling, P-S., & Abdul-Rahim, R. (2021). Managerial abilities and factor investment style performances of Malaysian mutual funds. Journal of Nusantara Studies, 6(1), 118-135. http://dx.doi.org/10.24200/jonus.vol6iss1pp118-135

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Market timing abilities of Indian mutual fund managers: an empirical analysis

DECISION ◽

10.1007/s40622-014-0036-2 ◽

2014 ◽

Vol 41 (3) ◽

pp. 299-311 ◽

Cited By ~ 7

Author(s):

Joyjit Dhar ◽

Kumarjit Mandal

Keyword(s):

Empirical Analysis ◽

Mutual Fund ◽

Market Timing ◽

Mutual Fund Managers ◽

Fund Managers

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Market Timing And Selectivity: An Empirical Investigation Into The Features Of Greek Mutual Fund Managers

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v18i3.2143 ◽

2011 ◽

Vol 18 (3) ◽

Cited By ~ 1

Author(s):

Nikolaos Philippas

Keyword(s):

Empirical Evidence ◽

Mutual Fund ◽

Performance Index ◽

Empirical Investigation ◽

Market Timing ◽

Font Size ◽

Data Set ◽

Mutual Fund Managers ◽

Fund Managers ◽

Market Index

Τhis paper is an empirical assessment of the performance of mutual fund managers in terms of “market timing” and “selectivity”, within the framework suggested by Treynor and Mazuy (1966) and Henriksson and Merton (1981). The relevant data set is a balanced panel of nineteen Greek managers, over a sixty-month period. Empirical evidence does not provide support for correct timing, irrespectively of how the returns of the market index are calculated. It is interesting to note that using the Total Performance Index reduces the ability of managers for selectivity. This result holds for both the models utilized in our study.

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Testing the skill of mutual fund managers: evidence from India

Managerial Finance ◽

10.1108/mf-04-2014-0112 ◽

2015 ◽

Vol 41 (8) ◽

pp. 806-824 ◽

Cited By ~ 1

Author(s):

Prateek Sharma ◽

Samit Paul

Keyword(s):

Mutual Funds ◽

Cross Section ◽

Mutual Fund ◽

Statistical Tests ◽

Emerging Market ◽

Performance Measure ◽

Mutual Fund Managers ◽

Content Type ◽

Fund Managers ◽

Investor Expectations

Purpose – The purpose of this paper is to utilize a constrained random portfolio-based framework for measuring the skill of a cross-section of Indian mutual fund managers. Specifically, the authors test whether the observed performance implies superior investment skill on the part of mutual fund managers. Additionally, the authors investigate the suitability of mutual fund investments under diverse investor expectations. Design/methodology/approach – The authors use a new skill measurement methodology based on a cross-section of constrained random portfolios (Burns, 2007). Findings – The authors find no evidence of superior investment skill in the sample of Indian equity mutual funds. Using a series of statistical tests, the authors conclude that the mutual funds fail to outperform the random portfolios. Furthermore, mutual funds show no persistence in their performance over time. These results are robust to choice of performance measure and the investment horizon. However, mutual funds provide lower downside risks and may be suitable for investors with high degree of risk aversion. Originality/value – The authors extend Burns’ (2007) methodology in several aspects, especially by using a much wider range of performance and downside risk measures to address diverse investor expectations. To the best of the authors’ knowledge, this is first study to apply the constrained random portfolios-based skill tests in an emerging market.

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Can Mutual Fund Managers Pick Stocks? Evidence from Their Trades Prior to Earnings Announcements

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109010000426 ◽

2010 ◽

Vol 45 (5) ◽

pp. 1111-1131 ◽

Cited By ~ 82

Author(s):

Malcolm Baker ◽

Lubomir Litov ◽

Jessica A. Wachter ◽

Jeffrey Wurgler

Keyword(s):

Mutual Fund ◽

Earnings Announcements ◽

Abnormal Returns ◽

Prior Work ◽

Mutual Fund Managers ◽

Earnings Announcement ◽

Fund Managers ◽

Earnings Surprises ◽

Corporate Earnings ◽

Stock Picking

AbstractRecent research finds that the stocks that mutual fund managers buy outperform the stocks that they sell (e.g., Chen, Jegadeesh, and Wermers (2000)). We study the nature of this stock-picking ability. We construct measures of trading skill based on how the stocks held and traded by fund managers perform at subsequent corporate earnings announcements. This approach increases the power to detect skilled trading and sheds light on its source. We find that the average fund’s recent buys significantly outperform its recent sells around the next earnings announcement, and that this accounts for a disproportionate fraction of the total abnormal returns to fund trades estimated in prior work. We find that mutual fund trades also forecast earnings surprises. We conclude that mutual fund managers are able to trade profitably in part because they are able to forecast earnings-related fundamentals.

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An Empirical Investigation of the Performance of Fund Managers in Pakistan

iRASD Journal of Management ◽

10.52131/jom.2021.0301.0026 ◽

2021 ◽

Vol 3 (1) ◽

pp. 56-68

Author(s):

Sanaullah Sanaullah ◽

Amna Noor ◽

Salleh Khan ◽

Muhammad Shahbaz Khan

Keyword(s):

Mutual Funds ◽

Mutual Fund ◽

Market Timing ◽

Performance Study ◽

Stock Selection ◽

Mutual Fund Managers ◽

Fund Managers ◽

Timing Ability ◽

Equity Funds ◽

Manager Performance

This study aims to determine the stock selection ability and market timing ability of mutual fund managers, focusing on conventional funds and Islamic funds in Pakistan. Although there has been significant growth in the number and assets of mutual funds in recent years, few studies measure the performance of mutual funds managers. The scarcity of existing literature motivates this study. In this study, two models are used to measure the stock selection and market timing on a sample of conventional mutual funds and Islamic mutual funds over 2010 and 2019 using annual returns. Overall, the results indicate that the performance study of conventional mutual funds and Islamic mutual funds indicates that manager performance is not superior in all three portfolios, i.e., conventional funds, Islamic funds, and overall funds in over sample period. This also indicates that both Conventional and Islamic fund managers do not outperform the market (KSE 100 index). Thus, there is a lack of market timing ability. Using Tranoy and mazuy and Jansen models found a lack of stock selection and market timing ability of mutual fund managers in Pakistani mutual funds. In this study, I have applied only two models to examine both the timing and selection ability of conventional and Islamic Pakistani equity funds. For future possibilities, the study suggests adopting several methods and approaches like the TMFF3 model and HM-FF3 model, making the study more comprehensive and accurate than this research.

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Market Timing and Stock Selection Ability of Mutual Funds in India: An Empirical Investigation

Vikalpa The Journal for Decision Makers ◽

10.1177/0256090920070204 ◽

2007 ◽

Vol 32 (2) ◽

pp. 39-52 ◽

Cited By ~ 10

Author(s):

Soumya Guha Deb ◽

Ashok Banerjee ◽

B B Chakrabarti

Keyword(s):

Mutual Funds ◽

Mutual Fund ◽

Emerging Market ◽

Market Timing ◽

Public Information ◽

Superior Performance ◽

Stock Selection ◽

Mutual Fund Managers ◽

Fund Managers ◽

Timing Ability

Evaluation of performance of mutual funds and identification of successful fund managers are of great interest to both investors and academicians. Two possible methods that are presumed to be used by fund managers for generating superior performance are identified as: Market timing: Market timing skills imply assessing correctly the direction of the market, whether bull or bear, and positioning their portfolios accordingly. Stock selection: Stock selection skills involve micro forecasting, which generally forecasts price movements of individual stocks relative to stocks and identification of individual stocks that are under-or over-valued relative to equities in general. The two pioneering works in this field is by Treynor Mazuy( 1966) and Henriksson Merton ( 1981). They developed two different models for testing the market timing and stock selection abilities of the fund managers but found little evidence of timing by the fund managers in their samples. Most of the other works mentioned in the paper have used these two models (which we name as traditional/unconditional models) or slight variations of the same for testing market timing and stock selection abilities of the fund managers. Person and Scadt (1996) modified the classical performance measures (of timing and stock selection ability) to take account of well-known information variables like interest rate, market dividend yield, etc. They termed it as ‘conditional approach’ of measuring mutual fund performance and claimed that conditioning on public information controls for biases in traditional market timing and stock selection models. Traditional models have taken the view that ‘any information’ correlated with the future market returns is superior information; in other words, they are unconditional models. Person and Scadt's approach used basically the same simplifying assumptions as the traditional models but they assumed, in addition, semi-strong form of market efficiency. The idea was to distinguish between market timing based on public information from market timing information that is superior to the lagged publicly available information variables. Although the academic literature on stock selection and market timing ability of mutual fund managers is rich and spans several decades, not many studies exist on this issue using emerging market data. This paper attempts to find the stock selection and market timing abilities of the Indian mutual fund managers using unconditional as well as conditional approaches. With a sample of 96 Indian mutual fund schemes, a lack of market timing ability and presence of stock selection ability were observed among the Indian funds managers in both unconditional as well as conditional approaches. A pooled regression was carried out for various categories of funds as well as for the entire sample, which also showed a lack of market timing abilities and presence of stock selection abilities.

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