Market timing ability of Norwegian mutual fund investors

Abstract

In this paper, we measure the timing ability of Norwegian mutual fund investors using a “performance gap”. We find evidence that equity fund investors between1996-2007 reduced their returns by 1.32% annually due to investor timing decisions. Investors in actively managed funds displayed the poorest performance, while investors in index funds actually showed the ability to time the market. Moreover, we find a robust relationship between investor underperformance and the size of the fund. Our results also provide evidence that investors who use monthly fund schemes or passively invest in mutual funds, enjoy an annual performance boost, while investors who actively buy and sell funds exhibit an annual penalty. Finally, we also find results indicating that foreign investors show both higher timing ability and a higher likelihood of picking superior funds than Norwegian investors.