The efficacy of market timing and value creation

Abstract

In this article, I use a total timing measure that differentiates between cash-flow timing and discount-rate timing to assess value creation among actively managed US equity mutual funds. My findings indicate that some funds exhibit cash-flow timing skills. Collectively, the top 20% of timing funds generate $3.4 billion annually in constant January 2000 dollars. Both sector rotation and individual stock selection contribute to executing timing techniques. Skilled timing funds shift their stockholdings toward cyclical sectors when anticipating positive changes in aggregate cash flows and toward defensive sectors when anticipating negative changes. Sector funds demonstrate similar cash-flow timing skills through their individual stock bets.