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Open AccessArticle

Volatility Timing in CPF Investment Funds in Singapore: Do They Outperform Non-CPF Funds?

1
Department of Economics, National University of Singapore, Singapore 119077, Singapore
2
School of Business and Law, Edith Cowan University, Joondalup, WA 6027, Australia
*
Author to whom correspondence should be addressed.
Risks 2019, 7(4), 106; https://doi.org/10.3390/risks7040106
Received: 6 July 2019 / Revised: 29 September 2019 / Accepted: 10 October 2019 / Published: 20 October 2019
(This article belongs to the Special Issue Measuring and Modelling Financial Risk and Derivatives)
The purpose of this study is to examine the volatility-timing performance of Singapore-based funds under the Central Provident Fund (CPF) Investment Scheme and non-CPF linked funds by taking into account the currency risk effect on internationally managed funds. In particular, we empirically assess whether the funds under the CPF Investment Scheme outperform non-CPF funds by examining the volatility-timing performance associated with these funds. The volatility-timing ability of CPF funds will provide the CPF board with a new method for risk classification. We employ the GARCH models and modified factor models to capture the response of funds to market abnormal conditional volatility including the weekday effect. The SMB and HML factors for non-US based funds are constructed from stock market data to exclude the contribution of the size effect and the BE/ME effect. The results show that volatility timing is one of the factors contributing to the excess return of funds. However, funds’ volatility-timing seems to be country-specific. Most of the Japanese equity funds and global equity funds under the CPF Investment Scheme are found to have the ability of volatility timing. This finding contrasts with the existing studies on Asian, ex-Japan funds and Greater China funds. Moreover, there is no evidence that funds under the CPF Investment Scheme show a better group performance of volatility timing. View Full-Text
Keywords: volatility timing; GARCH; weekday effect; currency risk exposure volatility timing; GARCH; weekday effect; currency risk exposure
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Shen, X.; Tsui, A.K.; Zhang, Z. Volatility Timing in CPF Investment Funds in Singapore: Do They Outperform Non-CPF Funds? Risks 2019, 7, 106.

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