Do Mutual Funds Time Their Benchmarks?

Posted: 14 Mar 2006

See all articles by Steven N. Kaplan

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Berk A. Sensoy

Vanderbilt University - Finance

Date Written: November 2005

Abstract

We investigate whether mutual funds time their self-designated benchmark indexes. Using data on fund portfolio holdings, we consider two possible sources of timing attempts: variation in cash holdings and variation in the benchmark beta of the fund portfolio. The results are mixed. Inconsistent with timing, funds do not successfully time the benchmark by varying their cash holdings. If anything, funds are more likely to increase cash or maintain high levels of cash before positive, not negative, benchmark excess returns. At the same time, consistent with timing ability, changes in the benchmark betas of fund portfolios are positively associated with future benchmark excess returns at horizons of 3, 6, and 12 months. The relation is driven by changes in the benchmark beta of the equity portion of fund portfolios rather than changes in portfolio weights on equity.

Keywords: Mutual Funds, Market Timing, Benchmarks, Cash

Suggested Citation

Kaplan, Steven Neil and Sensoy, Berk A., Do Mutual Funds Time Their Benchmarks? (November 2005). Available at SSRN: https://ssrn.com/abstract=890701

Steven Neil Kaplan

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4513 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Berk A. Sensoy (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

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