Effects of asymmetric information on market timing in the mutual fund industry
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 11 May 2018
Issue publication date: 25 September 2018
Abstract
Purpose
The purpose of this paper is to investigate the effects of information asymmetry (between the realized return and the expected return) on market timing in the mutual fund industry.
Design/methodology/approach
For the purpose, the authors use a panel of 1,488 active open-end mutual funds for the period 2004-2013. The authors use fund-specific time-dynamic betas. The information asymmetry is measured as the standard deviation of idiosyncratic risk. The data set is decomposed into five market fundamentals in order to emphasis the policy implications of the findings with respect to: equity, fixed income, allocation, alternative, and tax-preferred mutual funds. The empirical evidence is based on endogeneity-robust difference and system generalized method of moments.
Findings
The following findings are established. First, the information asymmetry broadly follows the same trend as volatility, with a higher sensitivity to market risk exposure. Second, fund managers tend to raise (cutback) their risk exposure in time of high (low) market liquidity. Third, there is evidence of convergence in equity funds. The authors may, therefore, infer that equity funds with lower market risk exposure are catching-up with their counterparts with higher exposure to fluctuation in market conditions.
Originality/value
The paper complements the sparse literature on market timing in the mutual fund industry with time-dynamic betas, information asymmetry and an endogeneity-robust empirical approach.
Keywords
Acknowledgements
The authors are indebted to the editor and referees for constructive comments.
Citation
Tchamyou, V.S., Asongu, S.A. and C. Nwachukwu, J. (2018), "Effects of asymmetric information on market timing in the mutual fund industry", International Journal of Managerial Finance, Vol. 14 No. 5, pp. 542-557. https://doi.org/10.1108/IJMF-09-2017-0187
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited