The Performance of Market-Timing Strategies of Italian Mutual Fund Investors

Abstract

In this paper we show that simple buy-and-hold strategies over-perform market-timing strategies effectively used by Italian investors in equity mutual funds. We estimate returns from market-timing strategies using aggregate data on net flows for a large sample of equity mutual funds, available to Italian investors, that buy stocks in the following markets: Europe and the euro area, the United States, and Emerging markets. In all cases, buy-and-hold over-performs market-timing with extra returns that go from 0.24% per quarter (Europe and euro area) to 0.87% per quarter (US market). These differences are not explained by differences in risk and risk exposure. Investors should re-consider their investment strategies and choose cheaper, in terms of fees, and simpler, in terms of portfolio allocation, passive strategies.

Keywords: mutual funds, market-timing, buy-and-hold, passive investment

JEL Classification: G11, G12