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Bai, Ting
2021.
Effects of Mutual Funds’ Flows and Returns on Style Changes.
SSRN Electronic Journal ,
Article contents
Artificial Market Timing in Mutual Funds
Published online by Cambridge University Press: 28 November 2022
Abstract
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We document statistically significant relations between mutual fund betas and past market returns driven by fund feedback trading. Against this backdrop, evidence of “artificial” market timing emerges when standard market timing regressions are estimated across periods that span time variation in fund systematic risk levels, as is typical. Artificial timing significantly explains the inverse relation between timing model estimates of market timing and stock selectivity. A fund’s feedback trading relates to its past performance and remains significant after accounting for trading on momentum. Fund flows suggest that investors value feedback trading, which helps hedge downside risk during bear markets.
- Type
- Research Article
- Information
- Journal of Financial and Quantitative Analysis , Volume 58 , Issue 8 , December 2023 , pp. 3450 - 3481
- Creative Commons
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.- Copyright
- © The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Footnotes
We thank an anonymous referee and Hendrik Bessembinder (the editor) for their helpful comments. The research is supported by the National Natural Science Foundation of China (NSFC) Grant (72121001), Tsinghua University through the Initiative Scientific Research Program, Institute for Industrial Innovation and Finance, and Tsinghua National Laboratory for Information Science and Technology.
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