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SELECTIVITY, MARKET TIMING, AND RANDOM BETA BEHAVIOR OF MUTUAL FUNDS: A GENERALIZED MODEL
Author(s) -
Chen Carl R.,
Stockum Steve
Publication year - 1986
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1986.tb00437.x
Subject(s) - beta (programming language) , market timing , econometrics , passive management , mutual fund , economics , financial economics , monetary economics , computer science , fund of funds , finance , market liquidity , portfolio , programming language
Abstract This paper presents a generalized varying parameter model to investigate the performance of mutual funds. The model allows beta nonstationarity to include both market timing and random beta behavior; therefore, it can be regarded as a general case of previous research. Forty‐three funds with a wide range of objectives are examined. The generalized varying parameter results indicate that about 30 percent of the funds show selectivity, 19 percent have random betas, and 14 percent indicate significant, yet negative, market timing performance. Therefore, mutual funds, as a group, show no market timing ability. The apparent ability to select undervalued securities, however, seems to conflict with the efficient markets hypothesis.