Orthogonalized factors in market-timing models of Polish equity funds

The main goal of this paper is to examine the influence of factororthogonalization in modified versions of classic market-timing models withthe Fama and French spread variables SMB and HML, which have beenintroduced in [Olbryś 2010]. We construct the orthogonal market factorsusing the Busse procedure [Busse 1999]. The market-timing and selectivityabilities of 15 equity open-end mutual funds have been evaluated for theperiod January 2003 – December 2009 based on the panel data estimationusing the SUR method. We compare the regression results of the models withcommon and orthogonal market factors and investigate their statisticalproperties.