Cash-Flow Timing vs. Discount-Rate Timing: An Examination of Mutual Fund Market-Timing Skills
American Finance Association Meetings, 2017 Chicago
89 Pages Posted: 1 Oct 2015 Last revised: 28 Oct 2019
Date Written: October 25, 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/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: Suggested Citation