Tuesday, July 14, 2009

Buying High and Selling Low - NYTimes.com

More evidence that suggests we are not very good at market timing.

From The NY Times:

Strategies - Buying High and Selling Low - NYTimes.com:
"A study that appeared in the September 2007 issue of the Journal of Banking and Finance has found that poor market-timing decisions are the rule rather than the exception. Titled “Mutual Fund Flows and Investor Returns: An Empirical Examination of Fund Investor Timing Ability,” its authors are Geoffrey C. Friesen, a finance professor at the University of Nebraska, Lincoln, and Travis R. A. Sapp, a professor of accounting and finance at Iowa State University.

The professors analyzed investors’ behavior at all domestic equity funds from 1991 through 2004. They found that investors’ poor timing decisions reduced their average returns over this period by 1.6 percentage points a year."

The 2007 paper by Friensen and Sapp is available at SSRN. here.

BTW the Friensen and Sapp go one step further in another paper (teaming with Mercer Bullard) and find that those investors who deal with load fund (vs no load funds) have are even worse at market timing. This flies in the face of the view that financial professionals have added timing benefits.

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