Get access

The Market Timing Ability of UK Mutual Funds

Authors

  • Keith Cuthbertson,

    1. The first and second authors are from Cass Business School, City University, London. The third author is from the Department of Economics, University College Cork, Ireland. They gratefully acknowledge the provision of mutual fund data by the Investment Research Partnership (http://www.tirp.co.uk). They also acknowledge the use of the data provided under licence from Morningstar UK. They are grateful for financial support from the Irish Research Council for the Humanities and Social Sciences (IRCHSS) and thank anonymous referees for helpful comments and suggestions. Main programmes use Gauss™.
    Search for more papers by this author
  • Dirk Nitzsche,

    1. The first and second authors are from Cass Business School, City University, London. The third author is from the Department of Economics, University College Cork, Ireland. They gratefully acknowledge the provision of mutual fund data by the Investment Research Partnership (http://www.tirp.co.uk). They also acknowledge the use of the data provided under licence from Morningstar UK. They are grateful for financial support from the Irish Research Council for the Humanities and Social Sciences (IRCHSS) and thank anonymous referees for helpful comments and suggestions. Main programmes use Gauss™.
    Search for more papers by this author
  • Niall O'Sullivan

    Corresponding author
    1. The first and second authors are from Cass Business School, City University, London. The third author is from the Department of Economics, University College Cork, Ireland. They gratefully acknowledge the provision of mutual fund data by the Investment Research Partnership (http://www.tirp.co.uk). They also acknowledge the use of the data provided under licence from Morningstar UK. They are grateful for financial support from the Irish Research Council for the Humanities and Social Sciences (IRCHSS) and thank anonymous referees for helpful comments and suggestions. Main programmes use Gauss™.
    Search for more papers by this author

* Address for correspondence: Keith Cuthbertson, Cass Business School, City University London, 106 Bunhill Row, London EC1Y 8TZ, UK.
e-mail: k.cuthbertson@city.ac.uk.

Abstract

Abstract:  We apply a recent nonparametric methodology to test the market timing skills of UK equity and balanced 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%) demonstrate positive market timing ability at a 5% significance level while around 19% of funds exhibit negative timing and on average funds miss-time the market. However, controlling for publicly available information we find very little evidence of market timing ability based on private timing signals. In terms of investment styles, there are a small number of successful positive market timers amongst Equity Income and ‘All Company’ funds but not among either Small Stock funds or Balanced funds, although a few small stock funds are found to time a small stock index rather than a broad market index.

Ancillary