Cash-Flow Timing vs. Discount-Rate Timing: An Examination of Mutual Fund Market-Timing Skills
American Finance Association Meetings, 2017 Chicago
91 Pages Posted: 1 Oct 2015 Last revised: 13 Jun 2019
Date Written: june 1, 2019
We measure the ability of professional investment managers in timing cashflow vs. discount-rate news, the two components of market returns. We find that the average U.S. equity mutual fund exhibits cashflow-timing skills of 2.12% per year, but discount-rate timing of -0.84%; cashflow-timing skills strongly persist over future quarters. The misspecification of market-timing skills accounts for the failure of prior research to locate skilled timing funds; such managers predict low-volatility cashflow news in the face of high-volatility discount-rate news, making skills difficult to detect with traditional models. Importantly, we find that value funds outperform growth funds in timing cashflow news.
Keywords: Cash-flow timing, discount-rate timing, market timing
JEL Classification: G12, G23
Suggested Citation: Suggested Citation