Do Fund Managers Use Private Information in Their Asset Allocation Decisions? Evidence from Macroeconomic Announcements

52 Pages Posted: 7 Apr 2006

See all articles by Bill B. Francis

Bill B. Francis

University of South Florida - College of Business Administration

Delroy M. Hunter

University of South Florida

Boyce D. Watkins

Syracuse University - Department of Finance

Date Written: January 20, 2006

Abstract

We ask whether fund managers use private information about forthcoming macroeconomic announcements in their asset allocation decisions and whether those that more aggressively use this information outperform those that do not. We present the first evidence that fund managers possess and actively use private information about forthcoming macroeconomic announcements. Specifically, the net asset values (NAVs) of hybrid funds respond strongly to the surprises in macroeconomic announcements and there is a distinct asymmetry in the response to positive and negative surprises. More important, the average fund manager engages in significant reallocation across asset classes in the two days before and (partly) reverses his trades in the two days after a large number of announcements. Further, managers that hold a greater proportion of their funds in stocks and make greater efforts to time the stock market using private information about the macroeconomic announcements earn over 400 basis points higher return per year. The opposite holds for those that hold more cash. Finally, funds that more aggressively attempt to time the market using private information tend to have higher turnover and expense ratios, which are related to a greater marginal product.

Keywords: market timing, private information, macroeconomic announcement, managerial skill

JEL Classification: G14, G23

Suggested Citation

Francis, Bill B. and Hunter, Delroy M. and Watkins, Boyce Dewhite, Do Fund Managers Use Private Information in Their Asset Allocation Decisions? Evidence from Macroeconomic Announcements (January 20, 2006). Available at SSRN: https://ssrn.com/abstract=890695 or http://dx.doi.org/10.2139/ssrn.890695

Bill B. Francis

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Dept. of Finance
Tampa, FL 33620-5500
United States
813-974-6300 (Phone)
813-974-3030 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/finance/facult

Delroy M. Hunter (Contact Author)

University of South Florida ( email )

Dept of Finance, Muma College of Business
4202 E. Fowler Ave, BSN3403
Tampa, FL 33620
United States
(813) 843-2085 (Phone)
(813) 974-3084 (Fax)

HOME PAGE: http://www.usf.edu/business/contacts/hunter-delroy.aspx

Boyce Dewhite Watkins

Syracuse University - Department of Finance ( email )

627 Whitman School of Management
900 S. Crouse Ave.
Syracuse, NY 13244-2130
United States
315-443-3486 (Phone)
315-443-5457 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
119
Abstract Views
1,004
rank
283,308
PlumX Metrics