Cash-Flow Timing vs. Discount-Rate Timing: An Examination of Mutual Fund Market-Timing Skills

Finance Down Under 2016 Building on the Best from the Cellars of Finance

American Finance Association Meetings, 2017 Chicago

89 Pages Posted: 1 Oct 2015 Last revised: 28 Oct 2019

See all articles by Chunhua Lan

Chunhua Lan

University of New Brunswick - Fredericton; Financial Research Network (FIRN)

Russ Wermers

University of Maryland - Robert H. Smith School of Business

Date Written: October 25, 2019

Abstract

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/year, but discount-rate timing of -0.84/year; further, cashflow-timing skills (but not discount-rate timing skills) strongly persist over future quarters. Our evidence shows that misspecification of market-timing abilities accounts for the failure of prior research to locate talented timing funds. Importantly, we find that value funds outperform growth funds in timing cashflow news, which provides new evidence on the unique skills of value-oriented mutual funds.

Keywords: Cash-flow timing, discount-rate timing, market timing

JEL Classification: G12, G23

Suggested Citation

Lan, Chunhua and Wermers, Russell R., Cash-Flow Timing vs. Discount-Rate Timing: An Examination of Mutual Fund Market-Timing Skills (October 25, 2019). Finance Down Under 2016 Building on the Best from the Cellars of Finance . Available at SSRN: https://ssrn.com/abstract=2667409 or http://dx.doi.org/10.2139/ssrn.2667409

Chunhua Lan (Contact Author)

University of New Brunswick - Fredericton ( email )

Bailey Drive
P.O. Box 4400
Fredericton NB E3B 5A3
Canada

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Russell R. Wermers

University of Maryland - Robert H. Smith School of Business ( email )

Department of Finance
College Park, MD 20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/rwermers/

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