Relationship Between Fund Attributes and Timing Abilities: Empirical Evidence from Mutual Funds Industry of Pakistan

Abstract

The timing abilities of fund managers are difficult to observe, therefore, identifying fund attributes explaining fund returns through timing abilities would be helpful to investors in selecting a particular fund. This study is an addition to the scarce literature covering the relationship of fund attributes on timing abilities of the mutual fund industry for an emerging economy, Pakistan, over the period 1999 to 2019. The study has employed a regression approach comprised of two stages. The findings of the study reveal that funds having more exposure to market movements show better market timing abilities and volatility timing abilities but poor selectivity timing abilities. Among all the variables, fund size has the largest impact on selectivity timing ability, depicting the efficiency of managers in selecting the right set of securities. Furthermore, the study concludes that the expense ratio and turnover ratio have a significant positive relationship with market timing abilities. However, the study reports a negative relationship between fund size and market timing ability. For volatility timing ability, the turnover ratio has the strongest effect, followed by market risk and turnover ratio respectively. For other fund attributes, the results report a weak relationship. These results provide valuable insight into the industry to focus more on the quality of the fund attributes resulting in improved timing abilities of fund managers.