Market Timing Ability of Pooled Superannuation Funds January 1981 to December 1987

Abstract

The performance of pooled superannuation funds is analysed within a framework that recognises that risk management or ‘market timing’ is an important aspect of the fund manager's decision‐making. Two broad appraoches to the issue of ‘market timing’ are adopted: first, the performance evaluation model developed by Henriksson and Merton [1981] which allows for return differentials to arise from both security selection and market timing; and second, the recursive residuals methodology of Brown, Durbin and Evans [1975] which identifies points in chronological time when the risks of the funds underwent a change. The results indicate that only 5 out of 16 funds had significant shifts in their risk over the period of the study, all of which occurred in late 1986 to early 1987. It follows that the usual Jensen measure of performance is inappropriate for these funds since one component of their performance is due to market timing activities. The return performance of these market timing activities is significantly negative for 15 to 16 funds indicating that their timing ability is perverse. To some extent this is an artifact of the market crash of October 1987 and that all funds had a positive exposure to equities. However, due to their asset allocation policies all funds are assigned significantly positive security selection performance.

Performance Evaluation of Mutual Funds in Indonesia

“…Some research also shows that mutual funds not managed to "timing the market" (Treynor and Mazuy, 1966;Henriksson, 1984;and Becker et al, 1999). Meanwhile, Sinclair (1990) to evaluate market timing and stock selection, the first in Australia, found that inversely with market timing in mutual funds would reduce the profitability of stock selection. Hallahan and Faff (1999) also examined the market timing and stock selection in Australia found little evidence to support that the fund will be a success with market timing.…”

“…Meanwhile, Sinclair (1990) tested the ability of managers in market timing, shows that the performance returns by using market timing is bad. Another study in Greece that tested stock selection and market timing conducted by Phillipas (2002) who found that investment managers in Greece failed to make an investment with the right market timing and by using the total performance index will reduce the ability of the manager in stock selection.…”

Performance Evaluation: A Review Article And An Empirical Investigation Of Greek Mutual Fund Managers

“…The application of this technique to a multi -portfolio benchmark in Connor and Korajczyk (1991) reveals similar results. Sinclair (1990) examined the market timing ability of managers of 16 Australian pooled superannuating funds from January1981 to December 1987. The return performance of market timing abilities of 15 out of the 16 funds was significantly negative indicating that the timing ability is perverse.…”

Markov Regime Switching Modelling and Analysis of Socially Responsible Investment Funds

“…At present, there is an amount of literature on superannuation funds which investigates different aspects of superannuation such as taxation (Bateman et al, 1993;Knox, 1992), annuities (Piggot et al, 2005), retirement timing (Kingston, 2000), disclosure (Gallery and Gallery, 2003), safety (Valentine, 2003), diversification (Diggle et al, 1999), performance (Bird et al, 1983;Robson, 1986;Sinclair, 1990;Hallahan, 1999;Sawicki and Ong, 2000;Prather et al, 2001;Drew and Stanford, 2010), returns, volatility and expenses (Coleman et al, 2003;Roca and Wong, 2008). Yet, none in the literature has focused primarily on the performance evaluation of Australian superannuation SRI funds and this study attempts to fill this gap in the superannuation literature.…”