Smart beta, smart money

Qinhua Chen and Yeguang Chi

Journal of Empirical Finance, 2018, vol. 49, issue C, 19-38

Abstract: Factor-timing strategies in the U.S. produce weak returns and are strongly correlated to the basic factor-holding strategies. We present contrasting evidence from China, where actively managed stock mutual funds successfully time the size factor (small minus big) despite a negative unconditional loading. Size-factor timing is an important aspect of manager skill, as it attributes to over 50% of fund alpha. We show that the timing skill arises from funds’ intra-period trading. Relatedly, funds with bigger return gaps exhibit more timing skill. Moreover, we find that mutual funds increase their size-factor exposure after high market turnover. However, mutual funds’ factor-timing skill remains significant after controlling for lagged turnover.

Keywords: Mutual funds; Emerging market; Factor timing; Smart beta; Performance attribution (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G15 G23 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:49:y:2018:i:c:p:19-38

DOI: 10.1016/j.jempfin.2018.08.002

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