Spanish Mutual Funds: Short-Term Performance and Market Timing

Abstract

This paper examines the short-term performance and market timing ability of equity mutual funds in Spain between 1990 and 2023. Using a sample of daily returns, we document strong evidence of performance persistence and market timing ability across deciles in the post-ranking quarter. We document that not only the best and worst managers show persistence in the ability to select stocks. Our evidence is robust across several performance models and on the state of the business cycle. We also document that successful fund managers adjust the market exposure of fund portfolios in reaction to macroeconomic predictions. Our results suggest that a sample of Spanish mutual funds exploit the predictability of market returns documented in the finance literature and investors could obtain higher returns by following a simple buy-and-hold strategy.

Keywords: Mutual Fund; Performance Persistence; Market Timing; Factor Models

JEL Classification: G11; G12