Mutual Fund Skill In Timing Market, Volatility, Liquidity and Sentiment : Evidence From China

Abstract

In this article, I examine market, volatility, liquidity, and sentiment timing ability. Using the sample of stock mutual funds from January 2005 to December 2020, I examine the existence and persistence of multiple dimensions of mutual fund managers' timing abilities. First, this study shows that mutual fund managers can time volatility, liquidity, and sentiment but have less ability to time market returns. And fund managers with good timing ability do not just rely on luck. In addition, in the results of the persistence test of the timing ability of fund managers, the timing strategies of most funds will reverse in the long run. However, funds using liquidity-timing and sentiment-timing skills tend to continue the original strategy in the short term. Finally, from the result of the persistence of fund timing performance, whether in the long-term or the short-term, the current timing performance of most funds cannot predict future timing performance, and less than 10% of funds have persistent timing performance. Meanwhile, from the perspective of the persistence of funds with top and bottom performance, about 15% of the funds with top performance can maintain their top performance. Still, nearly30% of the funds have an extreme reversal of timing performance, including switching from top performance to bottom performance or from bottom performance to top performance. Keywords: Chinese A-share market, mutual funds timing ability, performance persistence, market timing, volatility timing, liquidity timing, sentiment timing