Open Access Open Access  Restricted Access Subscription or Fee Access

Can mutual fund managers predict security prices to beat the market?The case of Greece during the debt crisis

Drosos Koutsokostas, Spyros Papathanasiou, Nikolaos Eriotis

Abstract


The purpose of this paper is to examine the performance of Greek equity mutual funds, elaborating on stock selection in parallel with market timing measures, in comparison with the performance of ETFs and index funds for the period 01/24/2008-05/12/2017, and the short-term performance persistence of actively managed funds for the period 05/12/2015-05/12/2017. Using all domestic equity mutual funds at our disposal and daily data, the authors apply multi-factor models to estimate risk-adjusted returns and to evaluate the selectivity and market timing ability of fund managers. In order to investigate short-term performance persistence, the coexistence of stock selection and market timing strategy is allowed and a battery of parametric and nonparametric tests is implemented. Results show that actively managed mutual funds underperformed the market index, as well as passively managed ETFs and index funds, primarily due to the managers’ inability to time the market. Furthermore, a winner-picking strategy to outperform a-buy-the-market-and hold policy is questioned.


Keywords


portfolio evaluation;exchange-traded funds;selectivity; market timing ability; short-term performance persistence; market efficiency

Full Text:

PDF

References


Avramov D. and Wermers R. ‘Investing in mutual funds when returns are predictable’ (2006) 81(2) Journal of Financial Economics 339-377.

Benos E. and Jochec M. ‘Short term persistence in mutual fund market timing and stock selection abilities’ (2011) 7(2) Annals of Finance 221-246.

Berk J.B. and van Binsbergen J.H. ‘Measuring skill in the mutual fund industry’ (2015) 118(1) Journal of Financial Economics 1-20.

Bollen N.P.B. and Busse J.A. ‘On the timing ability of mutual fund managers’ (2001) 56(3) The Journal of Finance 1075-1094.

Bollen N.P.B. and Busse J.A. ‘Short-term persistence in mutual fund performance’ (2005) 18(2) The Review of Financial Studies 569-597.

Brown S.J. and Goetzmann W.N. ‘Performance persistence’ (1995) 50(2) The Journal of Finance 679-698.

Carhart M.M. ‘On persistence in mutual fund performance’ (1997) 52(1) The Journal of Finance 57-82.

Chang E.C. and Lewellen W.G. ‘Market timing and mutual fund investment performance’ (1984) 57(1) The Journal of Business 57-72.

Cuthbertson K., Nitzsche D. and O’Sullivan N. ‘The market timing ability of UK mutual funds’ (2010) 37(1-2) Journal of Business Finance & Accounting 270-289.

Cuthbertson K., Hayley S. and Nitzsche D. ‘Market and style timing: German equity and bond funds’ (2016) 22(4) European Financial Management 667-696.

Daniel K., Grinblatt M., Titman S. and Wermers R. ‘Measuring fund performance with characteristic based benchmarks’ (1997) 52(3) The Journal of Finance 1035-1058.

Elton E.J., Gruber M.J., Das S. and Hlavka M. ‘Efficiency with costly information: a reinterpretation of evidence from managed portfolios’ (1993) 6(1) The Review of Financial Studies 1-22.

Fama E.F. ‘Efficient capital markets: a review of theory and empirical work’ (1970) 25(2) The Journal of Finance 383-417.

Fama E.F. ‘Efficient capital markets: II’ (1991) 46(5) The Journal of Finance 1575-1617.

Fama E.F. and French K.R. ‘Luck versus skill in the cross-section of mutual fund returns’ (2010) 65(5) The Journal of Finance 1915-1947.

Goetzmann W.N. and Ibbotson R.G. ‘Do winners repeat?’ (1994) 20(2) The Journal of Portfolio Management 9-18.

Grinblatt M. and Titman S. ‘Mutual fund performance: an analysis of quarterly portfolio holdings’ (1989) 62(3) The Journal of Business 393-416.

Grinblatt M. and Titman S. ‘The persistence of mutual fund performance’ (1992) 47(5) The Journal of Finance 1977-1984.

Gruber M.J. ‘Another puzzle: the growth in actively managed mutual funds’ (1996) 51(3) The Journal of Finance 783-810.

He W., Cao B. and Kent B.H. ‘The performance and market timing ability of Chinese mutual funds’ (2015) 24(3) Financial Services Review 289-311.

Hendricks D., Patel J. and Zeckhauser R. ‘Hot hands in mutual funds: short-run persistence of relative performance, 1974-1988’ (1993) 48(1) The Journal of Finance 93-130.

Henriksson R.D. ‘Market timing and mutual fund performance: an empirical investigation’ (1984) 57(1) The Journal of Business 73-96.

Henriksson R.D. and Merton R.C. ‘On market timing and investment performance. II. Statistical procedures for evaluating forecasting skills’ (1981) 54(4) The Journal of Business 513-533.

Huij J. and Verbeek M. ‘Cross-sectional learning and short-run persistence in mutual fund performance’ (2007) 31(3) Journal of Banking & Finance 973-997.

Ippolito R.A. ‘Efficiency with costly information: a study of mutual fund performance, 1965-1984’ (1989) 104(1) The Quarterly Journal of Economics 1-23.

Jiang W. ‘A non-parametric test of market timing’ (2003) 10(4) Journal of Empirical Finance 399-425.

Jensen M.C. ‘The performance of mutual funds in the period 1945-1964’ (1968) 23(2) The Journal of Finance 389-416.

Kahn R.N. and Rudd A. ‘Does historical performance predict future performance?’ (1995) 51(6) Financial Analysts Journal 43-52.

Koutsokostas D. and Papathanasiou S. ‘Mutual funds in Greece: case study of domestic equity mutual funds during a financial crisis’ (2017) 43(7) Managerial Finance 812-827.

Malkiel B.G. ‘Returns from investing in equity mutual funds 1971 to 1991’ (1995) 50(2) Journal of Finance 549-572.

Malkiel B.G. ‘Asset management fees and the growth of finance’ (2013) 27(2) Journal of Economic Perspectives 97-108.

Newey W.K. and West K.D. ‘A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix’ (1987) 55(3) Econometrica 703-708.

Otten, R. and Bams D. ‘European mutual fund performance’ (2002) 8(1) European Financial Management 75-101.

Rompotis G. ‘Can Greek mutual funds managers outguess the market persistently?’ (2007) Working paper, Social Science Research Network. URL: https://ssrn.com/abstract=1018850; http://dx.doi.org/10.2139/ssrn.1018850

Sharpe W.F. ‘Mutual fund performance’ (1966) 39(1) The Journal of Business 119-138.

Sinclair N.A. ‘Market timing ability of pooled superannuation funds January 1981 to December 1987’ (1990) 30(1) Accounting & Finance 51-65.

Treynor J. and Mazuy K. ‘Can mutual funds outguess the market?’ (1966) 44(4) Harvard Business Review 131-136.

Vidal-Garcia J. and Vidal M. ‘Spanish mutual funds: short-term performance and market timing’ (2016) Working paper, Social Science Research Network. URL: https://ssrn.com/abstract=2737272; http://dx.doi.org/10.2139/ssrn.2737272

Vidal-Garcia J., Vidal M. and Boubaker S. ‘Market timing around the world’ (2015) 18(2) Journal of Alternative Investments 61-89.

Vidal-Garcia J., Vidal M., Boubaker S. and Uddin G.S. ‘The short-term persistence of international mutual fund performance’ (2016) 52(B) Economic Modelling 926-938.

Wermers R. ‘Mutual fund performance: an empirical decomposition into stock-picking talent, style, transaction costs, and expenses’ (2000) 55(4) The Journal of Finance 1655-1695.

Wongchoti U. ‘Short-term persistence and mutual fund characteristics’ (2013) 10(4) Investment Management and Financial Innovations 156-165.




DOI: http://dx.doi.org/10.5750/jpm.v12i3.1644

Refbacks

  • There are currently no refbacks.