Abstract
This paper proposes a novel approach to determine whether mutual funds time the market. The proposed approach builds on a heterogeneous agent model, where investors switch between cash and stocks depending on a certain switching rule. This approach is more flexible, intuitive, and parsimonious than the traditional convexity approach. Applying this model to a sample of 400 US equity mutual funds, we find that 41.5% of the funds in our sample have negative market timing skills and only 3.25% positive skills. Twenty percent of funds apply a forward-looking approach in deciding on market timing, and 13.75% a backward-looking approach. We find that growth funds tend to be more backward-looking and income funds tend to be more forward-looking.
Original language | English |
---|---|
Pages (from-to) | 1613-1620 |
Number of pages | 8 |
Journal | Quantitative Finance |
Volume | 13 |
Issue number | 10 |
DOIs | |
Publication status | Published - 1 Oct 2013 |
Externally published | Yes |
Keywords
- Agent based models
- Heterogeneous agent model
- Market timing
- Mutual funds