Hindsight effect: What are the actual cash flow timing skills of mutual fund investors?

Fernando Muñoz and Ruth Vicente

Journal of Empirical Finance, 2018, vol. 45, issue C, 181-193

Abstract: This paper analyzes the cash flow timing skills of mutual fund investors, controlling for the hindsight effect (HE). We analyze a sample of US domestic equity mutual funds in the period 1990–2016. Before controlling for the HE, we find that mutual fund investors worsen the return that they achieve with their timing decisions by 1.80% annually. However, after controlling for the HE, the actual prejudice is 0.71% annually. We establish several additional controls obtaining these next results: (i) more sophisticated and informed investors show better timing skills; (ii) the HE is more relevant to less sophisticated investors; (iii) investors wrongly time their exposure to the stock market; and (iv) incubation bias does not significantly affect previous results.

Keywords: Cash flow timing skills; Level of information; Level of investor sophistication; Hindsight effect; Incubation bias (search for similar items in EconPapers)
JEL-codes: G11 G20 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:45:y:2018:i:c:p:181-193

DOI: 10.1016/j.jempfin.2017.11.004

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