THE TIMING AND STOCK SELECTION ABILITIES OF BANK FUNDS - EVIDENCE BASED ON METAANALYSIS

This study investigates the risk-adjusted investment performance of th e equity portfolios of bank trust departments, over the 1975-1992 peri od, attributable to their micro stock selection and macro market timin g abilities. This paper first employs a widely known parametric statis tical procedure developed by Henriksson and Merton to rest jointly for the presence of either superior stock selection or market timing abil ities. The paper then utilizes an alternative technique, called meta-a nalysis, to further examine the regression results obtained under the Henriksson-Merton model. The meta-analysis essentially eliminates such study artifacts as sampling and measurement errors through cumulation of results across studies. The findings of the joint test, based on t he Henriksson-Merton model, do not support either superior stock selec tion abilities or market timing skills on the parr of bank equity fund managers: selectivity measures are positive and timing measures are g enerally negative, but both measures are statistically insignificant. In contrast, the evidence based on the meta-analysis suggest that the managers of bank equity investment funds possess superior stock select ion abilities and somewhat negative timing skills. Therefore, the resu lts of this study suggest that, even though bank trust departments, li ke other categories of institutional investors, are unable to outperfo rm a passive ''buy and hold'' investment strategy through timing the e quity market, they are able to improve their investment performance th rough superior stock selection abilities.