Market Timing Ability and Mutual Funds: A Heterogeneous Agent Approach

B. Frijns, A. Gilbert, R.C.J. 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. © 2013 Copyright Taylor and Francis Group, LLC.
Original languageEnglish
Pages (from-to)1613-1620
JournalQuantitative Finance
Volume13
Issue number10
DOIs
Publication statusPublished - 2013

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