The Cross-Section of Conditional Mutual Fund Performance in European Stock 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
September 3, 2012
Journal of Financial Economics (JFE), Forthcoming
This paper implements strategies that use macroeconomic variables to select European equity mutual funds, including Pan-European, country, and sector funds. We find that several 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 that exploit time-varying predictability provide four-factor alphas of 12-13%/year over the 1993-2008 period. Our study provides new evidence on the skills of local versus Pan-European asset managers, as well as how macroeconomic information can be used to locate and time these local fund manager skills.
Keywords: European equity markets, mutual fund performance, time-varying investment opportunities
JEL Classification: G11, G15, G23Accepted Paper Series
Date posted: March 23, 2011 ; Last revised: September 5, 2012
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