The Market Timing Ability of UK Equity Mutual Funds

26 Pages Posted: 19 Jan 2007

See all articles by Keith Cuthbertson

Keith Cuthbertson

City University London - Sir John Cass Business School

Dirk Nitzsche

City University London - Sir John Cass Business School

Niall O'Sullivan

University College Cork

Date Written: November 2006

Abstract

We apply a recent nonparametric methodology to test the market timing skills of UK equity mutual funds. The methodology has a number of advantages over the widely used regression based tests of Treynor-Mazuy (1966) and Henriksson-Merton (1981). We find a relatively small number of funds (around 1.5%) demonstrate positive market timing ability at a 5% significance level, while around 10-20% of funds exhibit negative (perverse) timing and most funds do not time the market. Our findings indicate that the few skillful market timers possess private market timing signals so their performance cannot be attributed to publicly available information. In terms of fund classifications, there are a small number of successful positive market timers amongst equity income and general equity funds, while a few small company funds time a small company rather than a broad market index. We also apply regression based tests of volatility timing and find evidence that a slightly larger (around 5%) of funds successful time market volatility.

Keywords: Mutual funds performance, market timing

JEL Classification: C14, G11

Suggested Citation

Cuthbertson, Keith and Nitzsche, Dirk and O'Sullivan, Niall, The Market Timing Ability of UK Equity Mutual Funds (November 2006). Available at SSRN: https://ssrn.com/abstract=955812 or http://dx.doi.org/10.2139/ssrn.955812

Keith Cuthbertson (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Dirk Nitzsche

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Niall O'Sullivan

University College Cork ( email )

Department of Economics
University College Cork
Cork, n/a
Ireland

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