Effects of asymmetric information on market timing in the mutual fund industry

Vanessa Tchamyou (), Simplice Asongu and Jacinta Nwachukwu ()

No 18/007, Working Papers of the African Governance and Development Institute. from African Governance and Development Institute.

Abstract: The paper investigates the effects of information asymmetry (between the realised return and the expected return) on market timing in the mutual fund industry. For the purpose, we use a panel of 1488 active open-end mutual funds for the period 2004-2013. We use fund-specific time-dynamic betas. Information asymmetry is measured as the standard deviation of idiosyncratic risk. The dataset is decomposed into five market fundamentals in order to emphasis the policy implications of our findings with respect to (i) equity, (ii) fixed income, (iii) allocation, (iv) alternative and (v) tax preferred mutual funds. The empirical evidence is based on endogeneity-robust Difference and System Generalised Method of Moments. The following findings are established. First, information asymmetry broadly follows the same trend as volatility, with a higher sensitivity to market risk exposure. Second, fund managers tend to raise (cutback) their risk exposure in time of high (low) market liquidity. Third, there is evidence of convergence in equity funds. We may therefore infer that equity funds with lower market risk exposure are catching-up with their counterparts with higher exposure to fluctuation in market conditions. The paper complements the scarce literature on market timing in the mutual fund industry with time-dynamic betas, information asymmetry and an endogeneity-robust empirical approach.

Keywords: Information asymmetry; Mutual funds; Market timing; Market uncertainty (search for similar items in EconPapers)
JEL-codes: G12 G14 G18 (search for similar items in EconPapers)
Pages: 24
Date: 2018-01
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (132)

Forthcoming: International Journal of Managerial Finance

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http://www.afridev.org/RePEc/agd/agd-wpaper/Effect ... al-fund-industry.pdf Revised version, 2018 (application/pdf)

Related works:
Journal Article: Effects of asymmetric information on market timing in the mutual fund industry (2018)
Working Paper: Effects of asymmetric information on market timing in the mutual fund industry (2018)
Working Paper: Effects of asymmetric information on market timing in the mutual fund industry (2018)
Working Paper: Effects of asymmetric information on market timing in the mutual fund industry (2018)
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