The forecasting ability of world mutual funds. Issue 2 (2014)

• Record Type: Journal Article
• Authors: Javier Rodriguez
• Is Part Of: Studies in economics and finance. Volume 31:Issue 2(2014)
• Page Start: 130
• Page End: 140
• Publication Date: 2014
• Subjects: Economics -- Periodicals; Finance -- Periodicals; 330
• DOI: 10.1108/SEF-11-2012-0126
• Languages: English
• ISSNs: 1086-7376

Abstract

<abstract> <title> <x xml:space="preserve"> Abstract </x> </title> <p> <bold>Purpose</bold> – The paper aims to empirically examine the forecasting ability of US‐based world mutual funds during the 2001‐2007 time period. <bold>Design/methodology/approach</bold> – World mutual funds are treated as portfolios composed of two sets of securities, i.e. domestic and foreign and two methodologies are used to measure forecasting ability: domestic differential exposure and assertion rates. Domestic differential exposure is based on the difference between each fund exposure to the domestic market when it is the outperforming market and the portfolio exposure to the domestic market when the foreign market is outperforming. Similar to the differential exposure, assertion rates measure the ability of fund managers to pick, on a monthly basis, an outperforming market. <bold>Findings</bold> – Although changing economic conditions in both domestic and foreign markets provided plenty of opportunities to outperform market benchmarks, the results of two empirical tests reveal that fund managers fail to effectively manage their exposure to both markets. Some evidence of good forecasting ability is found when funds are examined on a yearly basis. <bold>Originality/value</bold> – This study provides the first implementation of both methodologies: domestic differential exposure and assertion rates, to examine global funds.</p> <ack> <title> <x xml:space="preserve"> Acknowledgements </x> </title> <p> <bold>JEL classification</bold> – G11, G15The author would like to thank the Business Administration Faculty and the Office of the Dean for Graduates Studies and Research at the University of Puerto Rico for their support. The research assistance of Herminio Romero is greatly appreciated.</p> </ack> </abstract>