Stock Selection and Timing Ability of the Taiwan Equity Funds—The Application of Stochastic Beta, GARCH, and Nonlinear GLS

Abstract

This study simultaneously examines funds’ selectivity, beta stationary, and timing decisions by the modified method of Chen and Stockum (1986). We adopt GARCH, generalized least square (GLS), and a nonlinear parameter-estimator model to increase the estimate efficiency. The results indicate that up to 86% of the funds have stochastic betas, over 99% show positive but insignificant selectivity, and 83% indicate negatively significant market-timing ability. This suggests that Taiwan domestic-equity fund managers, on average, do not have stock selectivity and timing ability, which seems to support the efficient market hypothesis.