THE EFFECT OF MARKET TIMING ABILITY AND FUND SIZE ON MUTUAL FUND PERFORMANCE OF MUTUAL FUND COMPANIES IN INDONESIA 45 THE EFFECT OF MARKET TIMING ABILITY AND FUND SIZE ON MUTUAL FUND PERFORMANCE OF MUTUAL FUND COMPANIES IN INDONESIA Mochammad Arif Budiono1), Musdalifah Azis2)* 1, 2 Faculty of Economic and Business, Universitas Mulawarman, Indonesia Abstract This study aims to analyze the effect of market timing ability and fund size of mutual funds on the performance of equity funds. This research was conducted at a mutual fund company registered in the Financial Services Authority (OJK) 2018-2019 period. This study uses purposive sampling with a total sample of 65 mutual fund shares. The type of data used is quantitative data and data sources in the form of company annual financial statements. Data analysis tools used are descriptive statistics and panel data regression. The results of this study indicate that the market timing ability has a significant positive effect on the mutual fund performance and the fund size has a significant negative effect on the mutual fund performance. Keywords: Market Timing Ability, Fund Size, Mutual Fund Performanceand, Equity Fund 1. INTRODUCTION In the mutual fund industry, we often hear the term NAV. NAV stands for Net Asset Value which shows how much the value of assets managed in a mutual fund is. The value of net assets divided by the unit of participation shows the price of the mutual fund, at this price the sale or purchase of mutual funds is carried out. Mutual fund performance is defined as a portfolio that not only looks at the rate of return generated by the portfolio, but also has to consider other factors such as fund size, market timing, securities portfolio analysis and portfolio risk level (Ünal & Tan, 2015). In this case, a mutual fund company's performance directly affects matters related to fund management by investment managers (Ferson & Mo, 2016). The total value of net assets (NAV) along with the number of units produced by all types of mutual funds in Indonesia has increased from year to year. In investing in mutual funds, an investor needs to understand portfolio management carried out by investment managers. Chang & Lewellen (1984) explained that to determine the performance of a good stock mutual fund, there are several variables that can be considered for investors in investing, one of which is market timing ability. Huij & Post (2011) explained that timing in the market is the ability of investment managers to make adjustments to the asset portfolio in order to anticipate changes or movements in general market prices. Philippas, (2011) explained that market timing ability has an influence on performance in a which is carried out using the Treynor-Mazuy method. The example is the comparison of the measurement of mutual fund performance and market timing ability of mutual funds, especially in equity funds registered with the Financial Services Authority (OJK). Fund size is also important for an investor to understand before investing in mutual funds. Fund size can be seen from the total portfolio of securities in a mutual fund (Vithessonthi & Tongurai, 2015). The larger the size of the managed securities funds will provide flexibility, increase the strength of the company and facilitate the creation of economies of scale which *Corresponding author: Musdalifah.azis@feb.unmul.ac.id mailto:Musdalifah.azis@feb.unmul.ac.id AFEBI Economic and Finance Review (AEFR) Volume 5, No 01 (2020) 46 company can have an impact on reducing costs so that it will have a positive impact on performance, and therefore will be able to provide a better picture of performance to investors. 2. LITERATURE REVIEW From the basic model of the financial literature, Markowit et al. (2011) stated portfolio theory shows that investors invest in a portfolio of securities to minimize the risk assessed by the standard deviation of portfolio returns. Fama (1970) described two main things in the company, namely investment funds and portfolio management. This methodology begins with a theoretical model developed by Fama (1970) explaining stock returns as a function of several references such as risk-free rate, market return, firm size, market value, firm profit, and firm investment activity. In the reference there is no general definition of mutual fund performance. In this case the performance in a company can be defined as a managed portfolio which is generally not determined by the rate of return obtained but other things such as the level of portfolio risk that needs to be known (Deb, 2019). This refers to how well a mutual fund investment manager can use the primary ability to manage securities portfolios and generate high returns. The explanation used as an overview of the overall securities portfolio during a certain period so that it can be used as a ratio for similar investment managers in managing and regulating each type of mutual fund which will be invested in its portfolio, the company's performance becomes a reference for choosing an investment manager (Nal & Tan, 2015). The purpose of mutual fund performance is to ensure in choosing the type of mutual fund to be an investment destination, as well as how to determine the ability of investment managers to manage portfolios (Zhao & Wang, 2007). Investment managers can be seen from their performance by managing funds, services and information transparency. Performance can be improved by ensuring the things that need to be invested gradually from time to time so that investment managers have prospects and become investors' choice in managing their portfolios. Market timing ability is the investment manager's expertise in analyzing a change in the price of a stock mutual fund so that the investment manager will position his portfolio in such a way as to generate returns that exceed market returns (Baker & Wurgler, 2002). Maciel, Gomide, Ballini (2016) explained that companies are more likely to issue equity when the market value or share price is high, relative to book and past market values and to repurchase equity when the market value or share price is low. Market timing ability is managed by an investment manager with psychological aspects that can affect the performance of the portfolio he manages, in this case the investment manager spends so much time controlling the market, but forgets to master himself, understand the calculations and thoughts that affect the high or low performance of mutual funds. Fund size is a presentation of the total capitalization of mutual funds, besides that fund size is a measuring tool in determining the size of mutual funds based on the funds in the managed portfolio and described in the securities portfolio (Chen et al., 2004). Asset Under Management (AUM) or managed funds in mutual funds which refers to the total value of investments managed by investment managers. AUM also refers to the total managed securities funds which will be directly related to the size of the mutual fund itself which can be seen from the total securities portfolio. The previous study explained the effect of the size of the securities portfolio on the excess return which was directly related and stated that a higher effect size would cause the risk faced by the company to be lower than securities with a low value (Elton et al., 2012). THE EFFECT OF MARKET TIMING ABILITY AND FUND SIZE ON MUTUAL FUND PERFORMANCE OF MUTUAL FUND COMPANIES IN INDONESIA 47 3. RESEARCH METHODS The purpose of this study is to analyze the effect of the independent variables, namely market timing ability literacy (X1), fund size (X2 simultaneously and partially on the dependent variable, namely mutual fund performance (Y). The population in this study were all mutual fund companies in the registered stock mutual funds and published by the Financial Services Authority (OJK) for the period 2018-2019. The sample used is purposive sampling, which means it is used based on certain criteria. In this study, especially stock mutual funds that have the conventional type. The type of data in this study is quantitative data. In this study, the data source used is secondary data. The data collection method in this study is by collecting all data consisting of a population of mutual fund investment managers with the conventional type of stock mutual funds. In this case, the research sample is a company that publishes a prospectus and is published and published by the Financial Services Authority (OJK) during the 2018-2019 period. The calculation of market timing ability uses the Treynor-Mazuy Ratio method while the fund size uses the total securities portfolio with Ln (natural logarithm). In calculating mutual fund performance using the Sharpe Ratio method of stock mutual funds. Variable Variable Measurement Source Dependent Variable; Mutual Fund Performance (Y) Sp = 𝑅𝑝 βˆ’ 𝑅𝑓 πœŽπ‘ Sharpe Ratio Information: Sp : performance index Sharpe 𝑅𝑝 : portfolio return or market rate of return 𝑅𝑓 : risk-free return risk-free interest rate πœŽπ‘ : standard deviation of portfolio returns during the observation period Deb, (2019) Independent Variable; Market Timing Ability (X1) 𝑅𝑝 βˆ’ 𝑅𝑓 = π‘Ž + 𝛽(π‘…π‘š βˆ’ 𝑅𝑓) + 𝛾(π‘…π‘š βˆ’ 𝑅𝑓)2 + πœ€π‘ Treynor-Mazuy Ratio Information: Ξ± : Intercept which is an indication of stock selection from the investment manager Rp : The average return of mutual funds for period t Rf : Average risk-free investment return period t Rm : Average market return period t 𝛽 : Regression coefficient of excess market return or slope when the market is down (bearish) Ξ³ : Regression coefficient which is an indication of the investment manager's market timing ability Ξ΅p : random error Wattanatorn & Tansupswatdikul, (2018) Independent Variable; Fund Size (X2) 𝐿𝑛(TPE) Information: TPE : Total Securities Portfolio Phillips et al., (2017) 4. RESULTS AND DISCUSSION The researcher tested the descriptive statistical analysis as follows; Descriptive Statistics Table AFEBI Economic and Finance Review (AEFR) Volume 5, No 01 (2020) 48 MFF MTA FS Mean -276.5618 -35.33975 25.35575 Median -0.538000 -0.086000 25.72642 Maximum 0.699000 0.465000 29.54082 Minimum -4071.000 -2051.000 18.19754 Std. Dev. 739.4779 238.7628 2.184822 Observations 130 130 130 The author uses a panel data regression technique by using a model of three alternative approaches to processing methods. Regression Results in Fixed Effect Model (FEM) Dependent Variable: MFF? Method: Pooled Least Squares Date: 03/17/20 Time: 11:18 Sample: 2018 2019 Included observations: 2 Cross-sections included: 65 Total pool (balanced) observations: 130 White cross-section standard errors & covariance (d.f. corrected) Variable Coefficient Std. Error t-Statistic Prob. C 1354.938 168.2154 8.054784 0.0000 MTA? 2.329440 3.33E-09 7.00E+08 0.0000 FS? -61.39023 0.000112 -547830.7 0.0000 Fixed Effects (Cross) _ASIE--C 68.03827 _ADEN--C 440.0028 _ADPN--C 387.4415 _ADSB--C 309.7426 _AECS--C 45.20841 _BDPR--C 275.9299 _BPRR--C 326.2399 _BTRR--C 71.44905 _BNSA--C 389.3635 _BDSO--C 129.5450 _BSLE--C 144.2585 _BDSI--C 365.6278 _BNEI--C 258.7603 _BPEK--C 196.3877 _BPIP--C -12.34003 _BPPE--C 174.4262 _BPSO--C 70.84613 _CEFF--C 161.0682 _COEQ--C -166.8648 _CPID--C 187.9502 _CPSE--C 215.6020 _CPTR--C 231.7757 _DEAN--C 276.8699 _DEPR--C 305.7434 _DPRE--C 173.0967 _EIAN--C 250.2805 _EIVD--C 386.1796 _FSIH--C 245.1806 THE EFFECT OF MARKET TIMING ABILITY AND FUND SIZE ON MUTUAL FUND PERFORMANCE OF MUTUAL FUND COMPANIES IN INDONESIA 49 _FSIP--C 257.6985 _FSIS--C 242.2236 _IIVS--C 106.6009 _KRPR--C 61.05840 _LEPR--C 144.2558 _LGFU--C 102.2947 _LSMA--C 136.4158 _LSPR--C 140.0034 _MSAI--C 158.9428 _MIAT--C 345.9200 _MICB--C 340.0390 _MIED--C 258.3720 _MIEA--C 165.4321 _MIEF--C -381.8035 _MIEM--C 304.5908 _MDSA--C -212.7687 _MIEF--C -381.8035 _MSAN--C -409.5591 _MSSP--C -502.3416 _MAGI--C -402.4167 _MAMA--C -664.3212 _OAEI--C -717.3413 _OBEF--C -860.7368 _OFEF--C 711.9652 _OMEF--C -564.7676 _OSFU--C -945.4750 _PADS--C 381.7969 _PBON--C -385.8929 _PDMA--C -514.3487 _PDPR--C -441.5895 _PDTE--C -449.9669 _PDUL--C -581.9407 _PEEX--C -644.4419 _PILC--C 119.4821 _PSAG--C -453.7427 _PSUN--C -591.6916 _RSKI--C 222.0482 Effects Specification Cross-section fixed (dummy variables) R-squared 0.713956 Mean dependent var -286.5700 Adjusted R-squared 0.414292 S.D. dependent var 744.4924 S.E. of regression 569.7718 Akaike info criterion 15.83472 Sum squared resid 20452314 Schwarz criterion 17.31260 Log likelihood -962.2567 Hannan-Quinn criter. 16.43523 F-statistic 2.382517 Durbin-Watson stat 3.939394 Prob(F-statistic) 0.000329 Hasil Uji Chow Redundant Fixed Effects Tests AFEBI Economic and Finance Review (AEFR) Volume 5, No 01 (2020) 50 Pool: OJK Test cross-section fixed effects Effects Test Statistic d.f. Prob. Cross-section F 0.741400 (64,63) 0.8823 Cross-section Chi-square 72.985206 64 0.2066 Hausman Test Results Correlated Random Effects - Hausman Test Pool: OJK Test cross-section random effects Test Summary Chi-Sq. Statistic Chi-Sq. d.f. Prob. Cross-section random 1.240918 2 0.5377 ** WARNING: estimated cross-section random effects variance is zero. Based on the results of the Chow test output from the Eviews version 10 tool, it can be seen that the F test value is significant at 0.8823 and the Chi-square value is also significant at 0.2066 which is greater than 0.05. This means that the null hypothesis is accepted, so the OLS method is better than FEM. Then the Hausman test was carried out. Based on the results of the Hausman test output with the Eviews version 10 tool, it can be seen that the p-value is greater than 0.05, which is 0.5377. Thus, the null hypothesis is accepted, so the use of a better method in this study is the REM method compared to OLS. However, due to the low R-square value in the OLS and REM methods, it is better for researchers to choose to use the FEM method in view of the large R-square value. Descriptive Statistics Test Results MFF MTA FS Mean -276.5618 -35.33975 25.35575 Median -0.538000 -0.086000 25.72642 Maximum 0.699000 0.465000 29.54082 Minimum -4071.000 -2051.000 18.19754 Std. Dev. 739.4779 238.7628 2.184822 Skewness -3.177018 -7.027490 -0.723713 Kurtosis 13.95046 52.96124 3.550142 Jarque-Bera 868.2177 14590.70 12.98752 Probability 0.000000 0.000000 0.001513 Sum -35953.04 -4594.168 3296.248 Sum Sq. Dev. 70540753 7353991. 615.7749 Observations 130 130 130 Multicollinearity Test Results MTA FS THE EFFECT OF MARKET TIMING ABILITY AND FUND SIZE ON MUTUAL FUND PERFORMANCE OF MUTUAL FUND COMPANIES IN INDONESIA 51 MTA 1 -0.1236025977724393 FS -0.1236025977724393 1 Heteroscedasticity Test Results Heteroskedasticity Test: Breusch-Pagan-Godfrey F-statistic 1.229632 Prob. F(2,127) 0.2959 Obs*R-squared 2.469536 Prob. Chi-Square(2) 0.2909 Scaled explained SS 6.281563 Prob. Chi-Square(2) 0.0432 To examine the classical assumption test in this study, the author used the multicollinearity test, heteroscedasticity test and autocorrelation test. The results of multicollinearity test showed that there is no relationship between the independent variables with a value of more than 0.90 so that the panel data model in this study does not have a multicollinearity problem. In this study, there was also no heteroscedasticity where the probability value of Osb*R-squared was 2.4695 (greater than 0.05). Furthermore, the autocorrelation test showed the DW value of 1.937305 which then refers to the Durbin-Watson benchmark, the test results show that the DW value of 3.9393 is between -3 < DW < 3 where there is autocorrelation. Panel Data Regression Analysis Results On Market Timing Ability (MTA) and Fund Size (FS) Variables Dependent variable Independent Variable Regression Coefficient t-count Prob. Direction Information MFF Constant 1354.938 8.054784 0.0000 MTA 2.329440 7.001407 0.0000 (+) Significant FS -61.39023 -547830.7 0.0000 (-) Significant R–Square 0.713956 Adjust R Square 0.414292 F-Stats 2.382517 F Significant 0.0000329 In the FEM model, the coefficient of determination (R2) is 0.713956. This means that the dependent variable (MFF) can be influenced by 71.39 percent by independent variables (MTA and FS), while the remaining 28.61 percent is explained by other variables not included in this research model. The results of the panel data regression test showed that the statistical F value was 2.382517, with the same significance value (F significant) of 0.000000 which was smaller than 0.05 (0.0000 < 0.05). These results explain that two independent variables of MTA and FS simultaneously affect MFF in the observed sample for the 2018-2019 and have shown a feasible model. In the t-test, MTA variable (X1) has a t-count value of 7.001407 and a probability level of 0.0000 > 0.05, which means that partially the variable has a significant positive effect on MFF. The FS variable (X2) has a t-count value of -547830.7 with a probability value of 0.0000 <0.05, which means that partially the variable has a significant negative effect on MFF. 4.1. Effect of Market Timing Ability on Mutual Fund Performance AFEBI Economic and Finance Review (AEFR) Volume 5, No 01 (2020) 52 Market timing ability has a positive and significant effect on mutual fund performance in equity mutual funds in Indonesia. This means that the determination of market timing by investment managers in portfolio management by using some measures. One of which is portfolio diversification, which increases investor confidence in investment managers. The results of the study are in line with research conducted by Wattanatorn & Tansupswatdikul, (2018), Deb, (2019), Ferson & Mo, (2016). Investment managers who have high market timing skills and expertise tend to have high performance. This is due to the right decision by the investment manager in making portfolio adjustments when buying and selling shares in anticipation of changes in market prices. 4.2. Effect of Fund Size on Mutual Fund Performance Fund size has a negative and significant effect on mutual fund performance in mutual fund companies in Indonesia. The results of this study differ from the hypothesis which states that fund size has a positive and significant effect on mutual fund performance. The results of this study differ from the hypothesis which states that fund size has a positive and significant effect on mutual fund performance in mutual fund companies in Indonesia. The results of this study are not in line with Phillips et al. (2017), Huij & Post, (2011), and Shilpi & Arti, (2014) who state that fund size has a positive and significant effect on mutual fund performance. Investors who invest in equity mutual funds do not pay much attention to managed funds to choose a portfolio. Investment managers, especially equity mutual funds, must have more expertise in diversifying their portfolios and providing the latest information on managed securities funds as a benchmark for investors. 5. CONCLUSION Based on the analysis that has been done in the previous chapter, the following conclusions can be drawn: Market Timing Ability has a positive and significant effect on Mutual Fund Performance. Investment managers who have skills and expertise in timing the market tend to have high performance. This is due to the right decision by the investment manager in making portfolio adjustments when buying and selling shares in anticipation of changes in market prices. Fund Size has a negative and significant effect on Mutual Fund Performance. 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