Abstract

http://ssrn.com/abstract=2560434
 


 



Timing Poorly: A Guide to Generating Poor Returns While Investing in Successful Strategies


Jason C. Hsu


Rayliant Global Advisors; Research Affiliates, LLC; University of California, Los Angeles - Anderson School of Business

Brett W. Myers


Texas Tech, Rawls College of Business

Ryan J. Whitby


Utah State University - Huntsman School of Business

May 1, 2015


Abstract:     
The persistence and magnitude of the value premium run counter to the behavioral explanation of the value anomaly. How can investors continue to make the same widely recognized mistake? By examining the difference between mutual funds’ reported buy-and-hold or time-weighted returns and the average dollar-weighted returns or IRRs earned by end investors, we quantify the consistently negative impact of value investors’ market timing decisions: over the 1991-2013 period, value mutual fund investors underperformed the funds they invest in by 131 basis points. Our analysis also reveals that investors in growth, large cap, and small cap funds are similarly prone to unproductive allocation timing. We additionally find that less sophisticated investors tend to make poorer timing decisions: investors who hold funds with high expense ratios had larger return gaps than those who chose less costly funds, and investors in retail funds underperformed by a greater margin than those who qualified for institutional share class funds. We suggest that, by giving away the excess return, value investors themselves finance the value premium and ensure its continuance. Financial education may help individual investors refrain from trading their funds in a counterproductive fashion.

Number of Pages in PDF File: 16

Keywords: value premium, mutual fund performance, behavioral finance, IRR, factor investing

JEL Classification: G10, G11, G14


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Date posted: February 6, 2015 ; Last revised: October 9, 2015

Suggested Citation

Hsu, Jason C. and Myers, Brett W. and Whitby, Ryan J., Timing Poorly: A Guide to Generating Poor Returns While Investing in Successful Strategies (May 1, 2015). Available at SSRN: http://ssrn.com/abstract=2560434 or http://dx.doi.org/10.2139/ssrn.2560434

Contact Information

Jason C. Hsu (Contact Author)
Rayliant Global Advisors ( email )
Hong Kong
Research Affiliates, LLC ( email )
620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States
HOME PAGE: http://www.jasonhsu.org
University of California, Los Angeles - Anderson School of Business
110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
Brett W. Myers
Texas Tech, Rawls College of Business ( email )
Lubbock, TX 79407
United States
Ryan J. Whitby
Utah State University - Huntsman School of Business ( email )
3500 Old Main Hill
Logan, UT 84322-3500
United States
435.797.9495 (Phone)
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