Testing Market Timing Ability Using Daily Mutual Fund Returns

45 Pages Posted: 18 Mar 2020 Last revised: 18 May 2020

See all articles by Jing Ding

Jing Ding

Tsinghua University

Lei Jiang

Tsinghua University

Xiaohui Liu

Jiangxi University of Finance and Economics

Liang Peng

Georgia State University - Risk Management & Insurance Department

Date Written: February 22, 2020

Abstract

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

Ding, Jing and Jiang, Lei and Liu, Xiaohui and Peng, Liang, Testing Market Timing Ability Using Daily Mutual Fund Returns (February 22, 2020). Available at SSRN: https://ssrn.com/abstract=3542845 or http://dx.doi.org/10.2139/ssrn.3542845

Jing Ding

Tsinghua University ( email )

Beijing, 100084
China
(+86)18811327918 (Phone)

Lei Jiang (Contact Author)

Tsinghua University ( email )

Beijing, 100084
China

Xiaohui Liu

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Liang Peng

Georgia State University - Risk Management & Insurance Department

P.O. Box 4036
Atlanta, GA 30302-4036
United States

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