European market timing

Abstract

In this paper, we analyze equity mutual funds from the main European countries using daily and monthly returns to determine whether the temporary frequency of the data produces changes in the identification of timing skills by fund managers that justifies the current trend in the finance literature of using daily returns instead of monthly observations for performance measurement purposes. In our analysis we employ data for 17 European countries from 1990 to 2020, we appreciate a greater significance in the results obtained when using daily returns, approximately 10% of funds show significantly positive market timing skills and the same proportion of funds show negative market timing across countries. In the present study, we show the usefulness of the increase in the temporal frequency of the observations as the use of daily data instead of monthly returns implies a greater significance in the results obtained. Our findings indicate that some mutual fund managers take advantage of the predictability of market returns explained in the finance literature. Thus, potential investors might try to identify the managers who have these timing skills to invest in their funds.