Estimation of Fund Selectivity and Market Timing: Performance of Pakistani Mutual Funds

Abstract

This study attempts to estimate the performance of mutual funds, how fund managers adjust and construct their portfolio by assessing the conditions of Pakistani stock market. Open end and Close end categories of twenty-eight mutual funds data from July 2005 to December 2011 have been included. Treynor and Mazuy (1966) model has been used for the estimation of stock selectivity and market timing performance of mutual funds. The result shows that only two close end types of mutual funds-which are market timing performance and one stock selective performance. However, most of the open-end mutual funds have shown performance of market timing and performance in stock selection ability with statistical significance. These results show that open-end mutual funds have assessed and predicted the stock market closely. It reflects that open-end mutual funds managers have chosen the right combinations of funds for the portfolio of their mutual funds. Open-end mutual fund managers have also adjusted the up and down variation of the Karachi Stock Market stock market correctly. On the contrary close end, mutual fund managers were unable to construct the right combination for fund’s portfolio and variation of the KSE.