An Exploration of the Conditional Timing Performance of UK Unit Trusts

Abstract

We examine the conditional market timing performance of UK unit trusts between January 1988 and December 2002. We find no evidence of superior conditional market timing performance by UK unit trusts either across different portfolios of trusts or by individual trusts. We also find that benchmark investing is significant for UK unit trusts and trusts have high numerical risk aversion to deviations from the benchmark. Our findings suggest that UK trusts act like benchmark investors. Copyright 2006 The Authors Journal compilation (c) 2006 Blackwell Publishing Ltd.

What style-timing skills do mutual fund “stars” possess?

“…For example, Chang and Lewellen (1984), Lee and Rahman (1990), Busse (1999), Wermers (2000), Bollen and Busse (2001), Chen and Liang (2007), Jiang, Yao, and Yu (2007), and Swinkels and Tjong-A-Tjoe (2007) find evidence of successful market timing activity. Contrary evidence is provided by Treynor and Mazuy (1966), Henriksson (1984), Chen, Lee, Rahman and Chan (1992), Fletcher (1995), Jiang (2003), Byrne, Fletcher and Ntozi (2006) and Cuthbertson, Nitzsche and O'Sullivan (2010). In addition, Daniel, Grinblatt, Titman, and Wermers (1997) evaluate fund manager style timing skill in aggregate, but find no evidence of such ability in practice.…”

Selectivity and timing performance of UK investment trusts

“…Therefore, different from previous studies suggesting the lack of power of the size and value factors (see, e.g., Ferson et al, 1999) and the momentum factor (see, e.g., Liew and Vassalou, 2000) in explaining cross-sectional variations in stock returns, our results provide new evidence demonstrating that the three factors have an important impact on fund excess returns. 21 See, e.g., Grinblatt et al (1995), Carhart (1997), Wermers (2000), and Pastor and Stambaugh (2002) for US mutual funds; Fletcher (1995), Becker et al (1999), Fletcher and Forbes (2002), and Byrne et al (2006) for UK unit trusts; Holmes and Faff (2008) for the Australian market; and Carlos and Cortez (2006) for the Portuguese market. 22 The presence of autocorrelation and ARCH effects is not surprising, since the estimations based on the GARCH family still leads to some neglected linearity in the conditional residuals (Joseph, 2003).…”

Mutual Fund Performance: Measurement and Evidence1

“…There has been relatively little research carried out on the market timing skills of UK funds. Byrne et al (2006) apply the conditional timing tests of Becker et al (1999) to 421 funds but find no evidence of positive timing ability over the period 1988 – 2002. Fletcher (1995) evaluates the market timing of 101 mutual funds between 1980 and 1989 using the HM and TM models but produces similar findings and in fact the results suggest that funds, on average, reduce their market exposures when subsequent market returns are high (and vice‐versa) .…”