Multidimensional Timing Ability in Pension Fund Management: Evidence from Conventional and Islamic Funds

Abstract

This study examines whether pension fund managers have multidimensional timing ability or merely raise the position in the equity portfolio prior to positive market returns. There are 316,448 daily observations for 69 Pakistani pension funds that span from June 2007 to July 2026. For this analysis, benchmark-aligned, the fund-day observation covers 61,520 observations (from 10 January 2014 to 10 July 2026) of 24 equity sub-funds, comprising 11 conventional funds and 13 Islamic funds, matched to the KSE-100 Total Return Index. The Treynor–Mazuy and Henriksson–Merton models are linked with an integrated specification where beta is dependent on market volatility, the NAV-implied liquidity and valuation-friction state, skewness and kurtosis. The fund-level estimates are robustified by equal-weight portfolios, regime analysis, alternative rolling windows, and a machine-learning holdout for the period July 2023 to July 2026. The findings point to a lack of the classical market time-taking ability but suggest that the defensive behaviour is heterogeneous, specifically volatility timing, liquidity timing and co-skewness timing in particular funds. Islamic funds are more volatile, but there is no disadvantage in terms of persistent return, return to volatility or drawdown. Adaptability in forecasting models is not always profitable with respect to the historical-mean benchmark, showing that state-dependent behaviour is not even exploitable.

Keywords: Pension Funds; Market Timing; Volatility Timing; Liquidity Timing; Higher-Moment Timing; Islamic Finance; Machine Learning; Pakistan

JEL Classification: G11; G12; G23; C52; C53