Selectivity and timing performance of UK investment trusts

Bangassa, Kenbata, Su, Chen and Joseph, Nathan L (2012) Selectivity and timing performance of UK investment trusts Journal of International Financial Markets Institutions and Money, 22 (5). pp. 1149-1175. ISSN 1042-4431

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Abstract

This study examines the selectivity and timing performance of 218 UK investment trusts over the period July 1981 to June 2009. We estimate the Treynor and Mazuy (1966) and Henriksson and Merton (1981) models augmented with the size, value, and momentum factors, either under the OLS method adjusted with the Newey–West procedure or under the GARCH(1,1)-in-mean method following the specification of Glosten et al. (1993; hereafter GJR-GARCH-M). We find that the OLS method provides little evidence in favour of the selectivity and timing ability, consistent with previous studies. Interestingly, the GJR-GARCH-M method reverses this result, showing some relatively strong evidence on favourable selectivity ability, particularly for international funds, as well as favourable timing ability, particularly for domestic funds. We conclude that the GJR-GARCH-M method performs better in evaluating fund performance compared with the OLS method and the non-parametric approach, as it essentially accounts for the time-varying characteristics of factor loadings and hence obtains more reliable results, in particular, when the high frequency data, such as the daily returns, are used in the analysis. Our results are robust to various in-sample and out-of-sample tests and have valuable implications for practitioners in making their asset allocation decisions across different fund styles.

Item Type:	Article
Additional Information:	The paper is published in the Journal of International Financial Markets, Institutions and Money, Volume 22, Issue 5, December 2012, pages 1149-1175. ## TULIP Type: Articles/Papers (Journal) ##
Uncontrolled Keywords:	38 Economics, 3502 Banking, Finance and Investment, 3801 Applied Economics, 35 Commerce, Management, Tourism and Services, Generic health relevance
Depositing User:	Symplectic Admin
Date Deposited:	06 Apr 2016 15:46
Last Modified:	22 May 2026 23:31
DOI:	10.1016/j.intfin.2012.06.001
Related Websites:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3000038
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