The predictable market and mutual fund’s superior performance. The evidence from the higher moment method

Abstract

© 2017, ASERS Publishing House. All rights reserved. In this study, we inspected the market timing ability and stock selectivity of mutual fund in a high volatile market – emerging market. The high level of volatility - risk, mean and variance approach are not sufficient to estimate the portfolio risk and return. To match the model with the environment of high risk and high return, we apply the coskewness risk factor - which is an unavoidable skewness risk, as another important risk in emerging market study. Our finding showed that the factor effectively supports the market timing ability of mutual fund manager in Thai market. The outcome further supports the prior belief that the return in emerging markets are more predictable than the developed market. Therefore, we examine the positive and significant market timing ability in all portfolio regardless their performance. We discover that the mutual fund manager prefers the positive skewness, particularly the poor performance-fund.