Reexamining the Market Timing Ability of Equity Funds in China—Cash-Flow and Discount-Rate Perspective

摘要

With the development of China’s stock market, equity mutual funds are playing a more and more important role in shaping the market. However, with some many funds in the present market, which ones are able to predict the future market movements and adjust the risk exposure of their fund portfolios correspondingly to make reasonable return faced by various market conditions? Based on the former study, this paper uses a new method to reexamine the market-timing ability of open-end, equity funds in China, that is, to decompose the market-timing ability into cash-flow timing and discount rate timing. This differentiation provides a more specific metric to measure the funds’ market timing performance besides rate of return, T-M measure and H-M measure, etc. The empirical study reveals that on average, Chinese equity fund managers can bring about 0.58% excess return per year when timing the aggregate stock market, but it is not significant at any reasonable levels. However, the writer finds there have significant timing skill in Chinese equity fund managers who can predict the changes of discount rate and it is highly unlikely to find an equity fund that can make continuous positive return as it declares. Therefore, it is hard for a common investor to make abnormal returns through investing capital in the mutual funds for a long time.