Monthly Measurement of Daily Timers

50 Pages Posted: 23 Apr 1998  

Jonathan E. Ingersoll Jr.

Yale School of Management - International Center for Finance

William N. Goetzmann

Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Zoran Ivkovich

Michigan State University, Department of Finance

Date Written: November 14, 1998

Abstract

This paper addresses the bias associated with parametric measurement of timing skill based on monthly timer returns when timers can make daily timing decisions. Simulations suggest that the classic Henriksson-Merton parametric measure of timing skill is weak and biased downward when applied to the monthly returns of a daily timer. The paper proposes an adjustment that mitigates this problem without the need to collect daily timer returns. Four tests of timing skill, carried out on a sample of 558
mutual funds, show that very few funds exhibit statistically significant timing skill. More encompassing, the adjusted-FF3 test (based on the specification that incorporates both the proposed adjustment and the Fama-French three-factor model) is the least biased measure of timing skill among the four--it provides for a sharper inference regarding timing skill and helps mitigate biases associated with the choice of investment style.

JEL Classification: G0, G1

Suggested Citation

Ingersoll, Jonathan E. and Goetzmann, William N. and Ivkovich, Zoran, Monthly Measurement of Daily Timers (November 14, 1998). Available at SSRN: https://ssrn.com/abstract=79388 or http://dx.doi.org/10.2139/ssrn.79388

Jonathan E. Ingersoll Jr.

Yale School of Management - International Center for Finance ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5924 (Phone)
203-432-6974 (Fax)

William N. Goetzmann (Contact Author)

Yale School of Management - International Center for Finance ( email )

165 Whitney Ave.
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5950 (Phone)
203-436-9252 (Fax)

HOME PAGE: http://viking.som.yale.edu

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Zoran Ivkovich

Michigan State University, Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

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