Testing Market Timing Ability Using Daily Mutual Fund Returns
45 Pages Posted: 18 Mar 2020 Last revised: 18 May 2020
Date Written: February 22, 2020
When using daily mutual fund returns to study market timing ability, heavy tails and heteroscedasticity significantly challenge the existing methods. We propose a new measure and an efficient test for market timing ability and find that the traditional test misclassifies about 50% of funds. Excluding funds with zero timing ability, we find that higher timing ability is associated with lower stock picking skill, and this conclusion is robust to different benchmark models. Examining the holding characteristics of the funds with different levels of timing ability, we find that funds with positive timing ability hold stocks with lower trading frictions.
Keywords: Coskewness, Market Timing, Mutual Fund
JEL Classification: G11, G23, C58
Suggested Citation: Suggested Citation