A Bet on Passive Investment Strategies

This study, focused on market timing models, agrees with the financial literature in favor of passive investment or indexing strategies, owing to the general underperformance of active management and to the empirical evidence detected regarding the inability of economic variables to predict market returns. In the Spanish mutual fund market, two fund families control 40% of the market. These two banks show a superior stock picking ability in comparison with the rest of the banks. But this ability is perverse even though managers use private information. On the other hand, we fit with the literature in finding that significant market timing ability is rare, although the smallest banks display superior market timing ability. Moreover, we agree with the financial literature in favor of the better specification of conditional performance models with regard to the traditional ones.