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MARKET VOLATILITY AND PERVERSE TIMING PERFORMANCE OF MUTUAL FUND MANAGERS
Author(s) -
Volkman David A.
Publication year - 1999
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.1475-6803.1999.tb00705.x
Subject(s) - market timing , volatility (finance) , mutual fund , equity (law) , economics , financial economics , index fund , monetary economics , passive management , open end fund , closed end fund , manager of managers fund , business , stock market , econometrics , fund of funds , finance , institutional investor , initial public offering , paleontology , corporate governance , horse , political science , law , market liquidity , biology
Prompted by the recent volatility in equity markets, I investigate performance evaluation methods and the mutual fund managers' ability to select undervalued investments and time major market movements during the high‐market‐volatility period of the 1980s. Specifically, I examine mutual fund managers' stock‐selection and market‐timing abilities by employing a five‐factor risk‐adjusted model based on Carhart's four‐factor loading model and Bhattacharya and Pfleiderer's quadratic timing model adjusted for perverse timing behavior. Individually, some managers persistently affect fund performance through the selection of undervalued investments, however, at the expense of timing performance. In addition, funds that demonstrate an ability to time major market movements showed persistence in timing performance before and after the October market crash of 1987.