ARCH Effect in Classical Market-Timing Models with Lagged Market Variable: the Case of Polish Market
DOI:
https://doi.org/10.12775/DEM.2011.013Keywords
market-timing, non-trading, ARCH effect, GARCH modelAbstract
The main goal of this study is to present the regressions of the GARCH versions of classical market-timing models of Polish equity funds. We examine the models with lagged values of the market factor as an additional variable because of the Fisher’s effect1 in the case of the main Warsaw Stock Exchange indexes. The market-timing and selectivity abilities of fund managers are evaluated for the period Jan 2003 – June 2011. Results on both the HAC and the GARCH estimates are qualitatively similar, and even better in the case of the simpler HAC method. For this reason, it is not necessary to estimate the GARCH versions of market-timing models in the case of Polish mutual funds, even despite the strong ARCH effects that exist in these models.
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