Stock Selection Timing

60 Pages Posted: 2 Apr 2019 Last revised: 18 Jun 2021

See all articles by George J. Jiang

George J. Jiang

Washington State University

Gulnara R. Zaynutdinova, Ph.D.

West Virginia University, Department of Finance

Huacheng Zhang

Southwestern University of Finance and Economics - Institute of Financial Studies

Date Written: January 1, 2015

Abstract

We argue that mutual fund managers should trade actively only when the market presents opportunities to pick stocks with positive alpha. In this paper, we propose stock-selection opportunity measures and show that a significant portion of mutual funds time their active trading, i.e., they trade more when the market presents more stock-selection opportunities. We show that positive timers outperform negative timers by about 82 bps in annualized four-factor alpha over the subsequent six-month horizon and, more importantly, that stock-selection timing contributes significantly to fund performance even after controlling for fund managers’ stock-picking ability. Finally, we present evidence that on average funds with very high portfolio turnover are actually poor timers, whereas younger funds and funds with larger family size exhibit better skills in timing stock-selection.

Keywords: Mutual Funds; Active Trading; Stock Selection Opportunity; Stock Selection Timing; Stock-picking ability

JEL Classification: G10, G11, G23

Suggested Citation

Jiang, George and Zaynutdinova, Gulnara R. and Zhang, Huacheng, Stock Selection Timing (January 1, 2015). Journal of Banking and Finance, Vol. 121, 2021, Available at SSRN: https://ssrn.com/abstract=3344478 or http://dx.doi.org/10.2139/ssrn.3344478

George Jiang

Washington State University ( email )

Department of Finance and Management Science
Carson College of Business
Pullman, WA 99-4746164
United States
509-3354474 (Phone)

HOME PAGE: http://directory.business.wsu.edu/bio.html?username=george.jiang

Gulnara R. Zaynutdinova

West Virginia University, Department of Finance ( email )

John Chambers College of Business and Economics
Morgantown, WV 26506
United States

HOME PAGE: http://https://business.wvu.edu/

Huacheng Zhang (Contact Author)

Southwestern University of Finance and Economics - Institute of Financial Studies ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

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