Short term persistence in mutual fund market timing and stock selection abilities

Evangelos Benos, Marek Jochec

Research output: Contribution to journalArticlepeer-review

12 Citations (Scopus)

Abstract

Using daily return data from 448 actively managed mutual funds over a recent 9-year period, we look for persistence, over two consecutive quarters, in the ability of funds to select individual stocks and time the market. That is, we decompose overall fund performance into excess returns resulting from stock selection and timing abilities and we separately test for persistence in each ability. We find persistence in the ability to time the market only among well performing funds and in the ability to select stocks only among the very best and worst performers. The existing literature patterns appear only when funds are ranked by their overall performance, which includes stock selection, market timing and fees. With respect to overall performance, there is persistence among most poorly performing and only the top well performing funds. Furthermore, the profitability of a winner-picking strategy depends on the rebalancing frequency and potentially the size of the investment. Small investors cannot profit, whereas large investors can take advantage of the class-A share fee structure and realize positive abnormal returns by annually rebalancing their portfolios.

Original languageEnglish
Pages (from-to)221-246
Number of pages26
JournalAnnals of Finance
Volume7
Issue number2
DOIs
Publication statusPublished - May 2011

Keywords

  • Market timing
  • Mutual fund performance
  • Stock selection

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance(all)

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