Mutual Fund Return Predictability in Partially Segmented Markets
Federal Reserve Board
Benjamin J. Gillen
California Institute of Technology
Allan G. Timmermann
University of California, San Diego (UCSD) - Department of Economics; Centre for Economic Policy Research (CEPR)
University of Maryland - Robert H. Smith School of Business
October 6, 2011
This paper studies the predictability of European equity mutual fund performance during a period when European stock markets were partially segmented. Specifically, we use macroeconomic variables to predict the performance of European equity funds, including Pan-European, country, and sector funds. We find that macro-variables are useful in locating funds with future outperformance, and that country-specific mutual funds provide the best opportunities for fund rotation strategies using macroeconomic information. Specifically, our baseline long-only strategies provide four-factor alphas of 10-12%/year over the 1993-2008 period. Our study provides new evidence on the benefits of local asset managers in segmented markets, as well as how macroeconomic information can be used to locate and exploit these benefits.
Number of Pages in PDF File: 77
Keywords: European equity markets; mutual fund performance; time-varying investment opportunities.
JEL Classification: G11, G15, G23working papers series
Date posted: March 23, 2009 ; Last revised: October 22, 2011
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