Time-Varying Skill: An Investigation of UK Mutual Funds

Abstract

This thesis investigates time-varying skills of UK domestic open-end equity mutual funds, namely timing skill and picking skill by using holdings data from 2005 to 2013, including a great recession period during 2008 to 2009. From examining the relation between the business cycle and both skills, this thesis finds that funds have picking skill and timing skill in expansions more than in recessions. In other word, there is no variation of skills with the business cycle. Moreover, when comparing top picking skilled funds in expansions to other funds, the result shows that top picking skilled funds in expansions also have higher picking skill and timing skill in recessions. Besides, top picking skilled funds in expansions can outperform other funds only measured by CAPM model. In addition, the study in the great recession or the crisis period finds that UK mutual funds have timing skill in the crisis more than in regular recessions, but they have picking skill in the crisis a little bit less than in regular recessions.