A Value Investment Strategy that Combines Security Selection and Market Timing Signals

2019 ◽  
Author(s):  
Neelkanth Mehta ◽  
Varun Kumar Pothula ◽  
Ritabrata Bhattacharyya
Keyword(s):  
Market Timing ◽  
Investment Strategy ◽  
A Value ◽  
Security Selection

scholarly journals Mutual Fund Performance: Evidence from India

2019 ◽  
Vol 8 (4) ◽  
pp. 11714-11723
Keyword(s):  
Portfolio Management ◽  
Mutual Fund ◽  
Market Timing ◽  
Investment Strategy ◽  
Fund Performance ◽  
Mutual Fund Performance ◽  
Stock Selection ◽  
Multifactor Models ◽  
Fund Managers ◽  
Timing Ability

We empirically examine fund managers’ stock selection and market timing ability using various risk-adjusted measures such as CAPM and multifactor models of FamaFrench (1993) and Carhart (1997) to gauge mutual fund performance in India. The sample consists of 183 actively managed equity-oriented funds and covers the period from April 2000 to March 2018. The study, on the whole, documents some evidence of positive and significant stock selection ability but fails to yield any notable evidence of market timing ability of fund managers. Our results are robust according to various riskadjusted performance evaluation techniques, sub-period analysis, excluding the crisis period and at the individual fund level. The findings of our study are in line with the previous studies that report limited selectivity skill and market timing ability among fund managers. The main implication of the study is that active portfolio management may not be very rewarding in comparison to a passive investment strategy.

Beyond market timing theory

2018 ◽  
Vol 35 (4) ◽  
pp. 458-480
Author(s):  
Subramanian Iyer ◽  
Siamak Javadi
Keyword(s):  
Capital Market ◽  
Small Firms ◽  
Market Timing ◽  
Financial Policy ◽  
Managerial Ability ◽  
Cash Balance ◽  
Content Type ◽  
Speed Of Adjustment ◽  
A Value ◽  
Significant Difference

PurposeThis study aims to examine the behavior of cash raised through market timing efforts and the success of such efforts in creating value to shareholders.Design/methodology/approachIt is shown that in two quarters, subsequent to raising equity, cash balance of market timers is higher but after that, there is no significant difference between timers and non-timers. Results of speed of adjustment regressions indicate that market timers move faster toward their target cash levels.FindingsMarket timers are small firms that suffer from asymmetric information. They have limited access to capital market, and raising external capital is an opportunity that should be timed. The results suggest that, on average, these firms are managed by more able executives, who are 10 per cent more likely to time the market; however, it is found that timing efforts are unsuccessful in creating value to shareholders even after controlling for the mitigating effect of managerial ability. Subsequent to market timing, on average, market timers earn significantly lower abnormal return over different holding periods relative to their comparable non-timer counterparts.Originality/valueOverall, the results undermine the validity of market timing as a value-maximizing financial policy.

scholarly journals Funds Manager and Mutual Funds Characteristics on Mutual Funds Performance: Empirical Evidence of Equity Mutual Funds in Indonesia

2020 ◽  
Vol 11 (2) ◽  
pp. 77
Author(s):  
Rina Rachmawati ◽  
Sugeng Wahyudi ◽  
Irene Rini Demi Pangestuti ◽  
Najmudin .
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Linear Models ◽  
Market Timing ◽  
Investment Strategy ◽  
Investment Fund ◽  
Fund Management ◽  
Fund Managers ◽  
Equity Funds ◽  
Positive Effect

This study examines the effect of investment fund managers' characteristics in the form of tenure, and mutual fund characteristics with proxy turnover portfolios, market timing and stock selectivity on the performance of stock mutual funds. The research sample is 27 stock mutual funds in Indonesia that were active from 2013 to 2017. On the analysis of the relationships between the characteristics of investment managers and mutual funds characteristics on the performance of stock mutual funds, a series of OLS regressions were run. The panel data regression was included based on using the Eviews. All of the above were aimed at achieving portfolio optimization and realizing the maximization of the interests for fund management companies and investors. The main findings are as follows. Tenure does not affect the performance of stock mutual funds during the years 2013 to 2017, but if divided into 2 quadrants of tenure, namely tenure over 19 years and tenure under 19 years of work, the result is that tenure over 19 years has a positive effect on the performance of stock mutual funds, but tenure brought 19 years has no effect on the performance of equity funds, whereas mutual funds characteristics, which are proxied by portfolio turnover, market timing and stock selectivity, have a significant positive effect on the performance of equity funds in Indonesia. The primary limitation in the scope is the sample, because stock mutual funds that publish consistently Financial statements between 2013 and 2017 are few in number. These findings have important implications for fund management companies as input material that the investment strategy of the investment management team affects the performance of equity funds compared to the characteristics of investment managers with proxies for years of service. This paper proposes a new perspective to evaluate the relationship between the fund manager and mutual funds characteristicsanddivide 2 groups of working years, and calculate them with non-linear models.

Investment styles and the multifactor analysis of market timing skill

2017 ◽  
Vol 13 (1) ◽  
pp. 21-35
Author(s):  
Jarkko Peltomäki
Keyword(s):  
Factor Model ◽  
Market Timing ◽  
Investment Strategy ◽  
Investment Strategies ◽  
Analysis Model ◽  
Content Type ◽  
Multifactor Models ◽  
Multifactor Model ◽  
Investment Style ◽  
Investment Styles

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.

scholarly journals KINERJA PENGELOLAAN DANA PADA PASAR MODAL INDONESIA

2008 ◽  
Vol 10 (4) ◽  
Author(s):  
Yuyun Istavirti ◽  
Dr. Andi M. Alfian Parewangi ◽  
Dr. Ruslan Prijadi
Keyword(s):  
Asset Allocation ◽  
Mutual Fund ◽  
Market Timing ◽  
Selection Strategy ◽  
Fund Manager ◽  
Data Set ◽  
Financial Investment ◽  
Allocation Policy ◽  
Tactical Asset Allocation ◽  
Security Selection

The mutual fund is a fast growing, flexible and sizely attainable product, hence make it as favourable choice for the investors. As in other developing countries, however, the management of the fund invested in mutual fund is done by pointed fund manager. This paper raises and answers the question of how efficient the fund management is. This paper ustilizes the decomposition return model on the monthly data set from 2002-2006 in Indonesia. The model derived, enable us to trace and decompose the management performance into (i) the allocation policy skill, (ii) the security selection skill and (iii) the market timing strategy or the tactical asset allocation abilty.The model estimation result shows significant management capabilities on allocating the fund into suitable asset class. We record that the best asset allocation policy was on February 2002, June 2004, August 2004 and February 2006. Inline with this, another result shows the negatif contribution of the short term-tactical asset allocation as conformed by several previous studies; Treynor-Mazuy (1996), Wardhani (2003), and Henriksson (1984) among others. There is an exception for February 2006 where a successful market timing strategy contributed an additional 7.34% return. The security selection strategy is confirmed to have a positive and significant impact on the mutual fund performance. During the observation period, the best security selection strategy was achieved on February, March and July 2002, September 2003, and March, October, and December 2005. For these certain period, the security selection activities gave more than 2% additional monthly return.The policy implication is straightforward; a more intensively monitoring on the implementation of the planned asset allocation to give a safer financial investment environment for the investors. This paper also suggest the investment manager to provide a sufficient information about the portfolio’s risk profile. Our quantitative description has shown a large varieties both on return and risk across the mutual fund manager showing their varied risk taking behaviour, on which the investor has a right to know.JEL Classification: H54, G11, G31, O16Keywords: Mutual fund, asset allocation, security selection, market timing, period specific estimation, financial investment

scholarly journals Comparação do Desempenho dos Fundos de Ações Ativos e Passivos

2009 ◽  
Vol 7 (2) ◽  
pp. 143 ◽  
Author(s):  
Bruno Ribeiro Castro ◽  
Andrea Maria Accioly Fonseca Minardi
Keyword(s):  
Mutual Funds ◽  
Market Timing ◽  
Portfolio Performance ◽  
Alpha Coefficient ◽  
Marginal Costs ◽  
Net Returns ◽  
Security Selection ◽  
Portfolio Managers ◽  
Book To Market Ratio ◽  
The Moment

We intend to investigate whether active portfolio managers have higher security selection ability than passive managers in Brazil. We built net monthly historical returns and estimated gross historical returns series from January 1996 till October 2006 of 626 stock mutual funds. We used the regression model proposed by Carhart (1997) with the addition of a market timing factor and analyzed the alpha coefficient sign and significance. Our results show that a significant number of managers exploit well-known strategies as size, book-to-market ratio, momentum and market timing. When we use net returns series as the dependent variable, we find that only 4.8% of active portfolios have positive and significant alphas. Active portfolio performance on average is not significantly different than passive portfolio performance. But when we run the regressions using the estimated gross returns, we found that 10.3% of active funds have positive and significant alphas, and on average the performance of active funds is significantly positive. Our results are in accordance with Jensen’s (1978) version of efficient market, in which asset prices reflect existing information till the moment when marginal benefits of using information do not exceed marginal costs.

scholarly journals On The Persistence Of Selectivity And Market Timing Skills In Hedge Funds

2013 ◽  
Vol 12 (12) ◽  
pp. 1575
Author(s):  
John Muteba Mwamba
Keyword(s):  
Hedge Funds ◽  
Market Timing ◽  
Hedge Fund ◽  
Efficient Market Hypothesis ◽  
Investment Strategy ◽  
Chi Square ◽  
Cross Sectional ◽  
Data Set ◽  
Fund Managers ◽  
Limited Arbitrage

This paper investigates the persistence of hedge fund managers skills during periods of boom and/or recession. We consider a data set of monthly investment strategy indices published by Hedge Fund Research group. The data set spans from January 1995 to June 2010. We divide this sample period into four overlapping sub-sample periods that contain different economic cycles. We define a skilled manager as a manager who can outperform the market consistently during two consecutive sub-sample periods. We first estimate outperformance, selectivity and market timing skills using both linear and quadratic Capital Asset Pricing Model-CAPM. Persistence in performance is carried out in three different fashions: contingence table, chi-square test and cross-sectional auto-regression technique. The results show that fund managers have the skills to outperform the market during periods of positive economic growth only. This market outperformance is due to both selectivity and market timing skills. These results contradict the Efficient Market Hypothesis-EMH due to limited arbitrage opportunity.

Using VIX to Dynamically Hedge Portfolio Risk

GIS Business ◽  
1970 ◽  
Vol 13 (3) ◽  
pp. 15-22
Author(s):  
Richard Cloutier
Keyword(s):  
Asset Allocation ◽  
Market Timing ◽  
Investment Strategy ◽  
Market Risk ◽  
Portfolio Risk ◽  
Dynamic Hedging ◽  
Hedging Strategy ◽  
Tactical Asset Allocation ◽  
Asset Class ◽  
Timing Strategies

Many investors accept buy and hold as their long-term investment strategy. However, during periods of heightened risk, staying disciplined can be problematic. Alternatively, market timing appeals to our emotions but is very difficult to employ successfully. Between these two extremes lies tactical asset allocation, where limited variances are allowed to take advantage of market conditions. Dynamic hedging is a form of tactical asset allocation. Instead of relying on future predictions of asset class returns, dynamic hedging strives to reduce portfolio risk when market risk is elevated. This paper presents a dynamic hedging strategy developed to accomplish this goal. It uses VIXs normal trading range to assess market risk. When VIX trades above its normal trading range and the upper Bollinger band, the dynamic hedging strategy is applied. The result is that portfolio risk is lowered when market risk is extreme. The application of this strategy provides better returns, lower volatility, and better downside protection than a strategic buy and hold allocation. It also avoids the deployment problems associated with market timing strategies.

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