Trading strategies of the US‐based international mutual funds and test of the SEC regulation

M. Imtiaz Mazumder (), Edward M. Miller and Atsuyuki Naka

Journal of Financial Regulation and Compliance, 2008, vol. 16, issue 2, 142-158

Abstract: Purpose - The purpose of this paper is to examine the predictability of the US‐based international mutual fund returns by investigating 2,479 daily observations for all categories of international equity, bond and hybrid mutual funds. Further, trading strategies are proposed and tested under different scenario including a proposed regulation by the Security and Exchange Commission (SEC). Design/methodology/approach - The sample is split and the initial sub sample is used to investigate return patterns of international funds and to develop trading rules based on the predictable return patterns. Trading rules are then tested on the holdout sample. Findings - Empirical results demonstrate statistically significant predictabilities. Various trading strategies show that the returns of both load and no‐load funds are economically significant beating a buy‐and‐hold strategy. Empirical findings are consistent across the fund categories irrespective of sizes and styles. The tested strategies are profitable even with various limits on frequency of trading, minimum holding periods and even under a recent SEC's proposed regulation. Further, possible contracting and regulatory changes are proposed to improve the efficiency in the mutual fund industry. Originality/value - The results confirm previous findings of statistically and economically significant regularities from trading strategies that involve following the US markets. A test of SEC's proposed regulation documents that short‐term investors may benefit from active trading strategy even if the SEC's rule is implemented.

Keywords: Equity capital; Bonds; International trade; Regulation; United States of America (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:v:16:y:2008:i:2:p:142-158

DOI: 10.1108/13581980810869797

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