Market Timing Of Portfolio Investment

This thesis empirically study the timing ability of Chinese funds with the models developed by foreign scholars and us.Timing is one of the most popular fields in financial studies. Although undergoing decades of research, there still exist some problems unsolved, such as the appropriate substitute for timing ability, the negative correlation between timing and selectivity, the inconsistency of evaluation horizon and decision horizon.We investigate the principle of timing models. Treynor and Mazuy (1966) assume that it is timing ability that causes the nonlinearity of portfolio's beta. Henriksson and Merton (1981) regard the timing ability as a free put option. Goetzmann, Ingersoll and Ivkovic (2000) try to catch the accumulated value of a sequence of such options. We conclude that GII model may pay a more applicable role in the timing study from the theoretical point of view.Taking into account the systematic factors, we create C4 model for the timing study of Chinese funds. C4 model separates the return from the bond market investment, and let the remainder stand for the stock market return. This arrangement makes the timing study focus on the equity investment. Empirical study proves the validity of C4 model. C4 model improves the negative correlation between timing and selectivity, as to make the timing model defined more accurately.We also design an experiment aiming to probe for the most suitable horizon in timing study. Among the three horizons, double-week horizon is regarded as the most suitable one.Using the longest data and Newey-West method, we do the empirical test. Some interesting results are reported. From the 1,242 regressions, Chinese funds not only show no positive timing ability but also bias downward with certain significance. But after GII-C4 model is chosen as the best model, Chinese funds demonstrate no positive timing ability too, but don't biased downward anymore. In a whole we can say that they have neutral timing ability.