Market timing ability and mutual funds: a heterogeneous agent approach

B Frijns, A Gilbert, RCJ Zwinkels

Research output: Contribution to journalArticleAcademicpeer-review

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 languageEnglish
Pages (from-to)1613-1620
Number of pages8
JournalQuantitative Finance
Volume13
Issue number10
DOIs
Publication statusPublished - 1 Oct 2013
Externally publishedYes

Keywords

  • Agent based models
  • Heterogeneous agent model
  • Market timing
  • Mutual funds

Fingerprint

Dive into the research topics of 'Market timing ability and mutual funds: a heterogeneous agent approach'. Together they form a unique fingerprint.

Cite this