Short Term Persistence in Mutual Fund Market Timing and Stock Selection Abilities

31 Pages Posted: 19 Dec 2008 Last revised: 18 Nov 2009

See all articles by Evangelos Benos

Evangelos Benos

University of Illinois at Urbana-Champaign

Marek Jochec

Graduate School of Business, Nazarbayev University

Date Written: December 15, 2008

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.

Keywords: mutual fund performance, market timing, stock selection

JEL Classification: G2

Suggested Citation

Benos, Evangelos and Jochec, Marek, Short Term Persistence in Mutual Fund Market Timing and Stock Selection Abilities (December 15, 2008). Available at SSRN: https://ssrn.com/abstract=1317126 or http://dx.doi.org/10.2139/ssrn.1317126

Evangelos Benos

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

Marek Jochec (Contact Author)

Graduate School of Business, Nazarbayev University ( email )

53 Kabanbay Batyra Avenue
Astana, 010000
Kazakhstan

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