Market timing of international mutual funds: a decade after the scandal

In early 2000´s, the mutual funds industry was shaken by a series of scandals involving (legal) market timing and (illegal) late trading of mutual funds. These scandals have resulted in various regulations restricting investors´ ability to exchange their mutual fund holdings. This paper applies data-analytic modeling techniques to test the effectiveness of market timing of international mutual funds. Our results indicate that whereas market timing strategies have been indeed profitable in the past, these strategies do not provide consistent improvement over traditional ´buy-and-hold´ strategy during most recent period of 2009-2011. Ineffectiveness of market timing strategies seems to be directly related to increased volatility and changing statistical characteristics of the financial markets. These changes may warrant critical examination of trading restrictions placed on individual investors. These restrictions put individual investors at a disadvantage vs. institutional investors and hedge funds who invest in the same securities.