The Effect of Style Timing Ability on Fund Performance

Abstract

Abstract:

This paper adopts the canonical correlation method to examine whether fund managers' daily style timing abilities are able to affect fund performance for 519 actively managed open-ended mutual funds from January 2002 to December 2013. We find that there is a moderate correlation between style timing abilities and fund performance. Market timing ability mostly from growth funds can affect fund performance more significantly than value and momentum timing abilities mainly from value and balance funds, while the effect of size timing ability on fund performance is insignificant. The choice of performance indicators does not affect fund ranking, but the effect of style timing ability on fund performance makes Sharpe ratio being a suboptimal choice, which provides investors with a new viewpoint for rational investment.

Key words: fund performance, investment style, style timing ability, canonical correlation

Yi Li, Hu Zhenhua. The Effect of Style Timing Ability on Fund Performance[J]. , 2016, 28(4): 41-51.

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