Market Timing the Trading of International Mutual Funds: Weekend, Weekday and Serial Correlation Strategies

M. Imtiaz Mazumder, Edward M. Miller and Oscar A. Varela

Journal of Business Finance & Accounting, 2010, vol. 37, issue 7‐8, 979-1007

Abstract: Abstract: Predictability and exploitability of daily anomalies in returns for US‐based international mutual funds is this paper's focus. Market timing strategies examined include simple weekend, complex weekday, and restricted weekend strategies, and those related to serial correlation in foreign indexes. All are compared to a buy‐and‐hold strategy, are adjusted for risk, and include investments in money market funds when called for, in contrast to most other studies. The 123 funds examined are in nine fund categories, including Europe, Asia, Japan, Latin America, and emerging markets and combinations thereof. These are matched to foreign market indexes that approximate their country or regional composition using country indexes or Morgan Stanley Capital International (MSCI) indexes. Over the daily period January 4, 1993 to October 31, 2002, the foreign indexes are tested for day‐of‐the‐week and serial correlation effects. Trading strategies using these effects with the most related foreign indexes are imposed on the funds and the equally weighted portfolio of funds in each category. Superior performance is associated with the serial correlation strategy, when compared to buy‐and‐hold, as well as simple weekend, complex, and restricted weekend strategies. These also perform better than a buy‐and‐hold, with the complex being best. All results are robust to Sharpe, Treynor and Jensen measures of performance. The strategies, especially those based on serial correlation, are also superior in terms of Treynor‐Mazuy and Henriksson‐Merton market timing models. Further, our results are robust to different time periods surrounding the 1997 Asian currency crisis and September 11, 2001, different hold‐out samples, and to sub‐samples of load versus no‐load funds.

Date: 2010
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