Artificial Market Timing in Mutual Funds

60 Pages Posted: 30 Apr 2020 Last revised: 2 Sep 2021

See all articles by Jeffrey A. Busse

Jeffrey A. Busse

Emory University - Department of Finance

Jing Ding

Tsinghua University

Lei Jiang

Tsinghua University

Yuehua Tang

University of Florida - Department of Finance

Date Written: September 1, 2021

Abstract

We document statistically significant relations between mutual fund betas and past market returns driven by fund feedback trading. Against this backdrop, evidence of “artificial” market timing emerges when standard market timing regressions are estimated across time periods that span time variation in fund systematic risk levels, as is typical. Artificial timing significantly explains the inverse relation between timing model estimates of market timing and stock selectivity, while contributing to evidence of perverse market timing. Analyzing fund transaction-level data shows that feedback trading leads to higher transaction costs and lower fund performance.

Keywords: Feedback trading, mutual funds, artificial timing, transaction costs

JEL Classification: G11, G23

Suggested Citation

Busse, Jeffrey A. and Ding, Jing and Jiang, Lei and Tang, Yuehua, Artificial Market Timing in Mutual Funds (September 1, 2021). Available at SSRN: https://ssrn.com/abstract=3554763 or http://dx.doi.org/10.2139/ssrn.3554763

Jeffrey A. Busse

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-0160 (Phone)
404-727-5238 (Fax)

Jing Ding

Tsinghua University ( email )

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

Lei Jiang (Contact Author)

Tsinghua University ( email )

Beijing, 100084
China

Yuehua Tang

University of Florida - Department of Finance ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/yuehuatang

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