A Generalized Approach to Measure Market Timing Skills of Fund Managers: Theory and Evidence

摘要

In this paper the authors extend the analysis in Woodward and Brooks (2010) to derive a generalized form of Merton 's (1981) dual beta market timing model that allows for continuous adjustment of portfolio beta in response to changing market conditions, and also includes the dual beta model as a special case. The model provides a more realistic representation of the fund return generation process. Using this model the authors test the market timing skills of fund managers for a sample of A ustralian superannuation funds for the period 1990 to 2002. The authors find that managed funds in which investors voluntarily select a given fund (retail funds) experience frequent rebalancing when compared to managed funds in which the investors 'contribution is involuntary (wholesale funds). The authors relate the greater sensitivity to all changes in market conditions of retail funds to higher expenses and poor performance that was found in a recent study by Langford, Faff and Marisetty (2006). The results have important implications for Australian superannuation policy, since the Australian Government, effective from 1st July 2005, has required all funds to introduce voluntary contribution schemes.