Mutual funds’ stock picking ability in Korea stock market

Abstract

Most of the mutual funds were introduced to Korea market after the Asian Currency Crisis. There were 5,348 mutual funds in 2001 and now there are 15,236 mutual funds (Dec, 2007) in the Korean market including foreign market investing mutual funds. This market grew very fast within a relatively short period and is known to yield good performance. But, due to the relatively short history of mutual funds, there is no reliable fund performance measurement. Do the mutual funds in Korea market can systematically pick stocks that beat the market? Do the mutual funds in Korea market can successfully time their portfolio? This thesis is to find stock picking ability and timing ability of mutual funds in Korea market by measuring mutual fund performance using characteristic based benchmark. I applied this measurement method to the 4,302 equity type mutual funds and 4,566,282 of mutual funds’ holdings for the period of Jul, 2001 to Dec, 2007. The results show that mutual funds in Korea market show stock picking ability and timing ability before considering management fees, expenses and trading costs. Particularly both abilities are highest in High Growth III type mutual funds. And the mutual funds in Korea market keep similar equity holding style across the funds. Further once the fund return is positive the persistence is almost two times than the persistence of negative return fund.