Nonparametric Tests For Market Timing Ability Using Daily Mutual Fund Returns
48 Pages Posted: 18 Mar 2020 Last revised: 29 Sep 2020
Date Written: September 29, 2020
When using daily mutual fund returns to study the market timing, heavy tails and heteroscedasticity significantly challenge the existing methods. We to accommodate them, 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 withvzero timing ability, we find that that higher timing ability is associated with lower stock picking skill, this conclusion is robust to different benchmark models. Examining theholding characteristics of the funds with different levels of timing ability, we find that funds with a positive timing ability hold stocks with lower trading frictions.
Keywords: Coskewness, Market Timing, Mutual Fund
JEL Classification: G11, G23, C58
Suggested Citation: Suggested Citation