Perverse timing or biased coefficients?

Mercedes Alda, Mar�a Vargas and Luis Ferruz

Quantitative Finance, 2015, vol. 15, issue 1, 171-183

Abstract: The aim of this work is to examine the influence of mutual fund flows on market timing models, thus providing unbiased timing coefficients. However, as this control is motivated by the existing relationship between mutual fund flows and market returns, we first analyse this relationship, considering previous and concurrent market returns. However, unlike existing studies, we do not consider future returns, since investors do not observe them when making investment decisions. Thus, we feel it is more appropriate to consider expected market returns. We construct the expected market returns by running an AR model and considering the available public information about the macro-economy. The relationship is analysed under different conditions, considering a variety of different mutual fund flow measures, and considering (or not) the sensitivity of mutual fund flows to positive and negative market returns. We also propose different controls for the traditional timing models, and we further analyse the reverse-causality problem. The study demonstrates, for a sample of equity mutual funds registered for sale in the USA, that the poor market timing performance found in this and other prior studies can be completely attributed to the perverse effect of the fund managers' liquidity service.

Date: 2015
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/14697688.2012.745647 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:15:y:2015:i:1:p:171-183

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697688.2012.745647

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().