Tests of Market Timing And Mutual Fund Performance
Tests of Market Timing And Mutual Fund Performance
Roy Henriksson
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0 0. 5 1. 5 -31- FIGURE 8: TEST # 6 DISTRIBUTION E0. O 15 10 5. 0 C 0. 5 1. 5 -32- FIGURF. 9: TKST if 7 DISTRIBUTION 20. 0 15. 0 10 5. 0 0. 0 0. 5 1. 5 -33- FIGURi: 10; 1l. ST •• 8 DISTRIBUTION 150 10. 0 -34- Another problem that is more difficult to deal with is potential errors in identifying the correct market forecast. One potential error is due to the discrete quarterly timing of the data used to determine the forecasts. The adjustment process may differ from the data intervals used. An ex...ample of this problem would be as follows. The proportion of the fund in stocks increased from 0% to 50% from March 31 to June 30, 1980, thus indicating a forecast that the return on the market will exceed the return from bonds. However, the proportion of the fund in stocks may have been 100% on May 31. This would imply that the managers of the fund had actually been reducing the proportion of the fund in stocks over the last month of the quarter, thus indicating a forecast that bonds would outperform stocks.
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