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Test for Market Timing Using Daily Fund Returns

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  • Lei Jiang
  • Weimin Liu
  • Liang Peng

Abstract

Using daily mutual fund returns to estimate market timing, some econometric issues, including heteroscedasticity, correlated errors, and heavy tails, make the traditional least-squares estimate in Treynor–Mazuy and Henriksson–Merton models biased and severely distort the t-test size. Using ARMA-GARCH models, weighted least-squares estimate to ensure a normal limit, and random weighted bootstrap method to quantify uncertainty, we find more funds with positive timing ability than the Newey–West t-test. Empirical evidence indicates that funds with perverse timing ability have high fund turnovers and funds tradeoff between timing and stock picking skills.

Suggested Citation

  • Lei Jiang & Weimin Liu & Liang Peng, 2022. "Test for Market Timing Using Daily Fund Returns," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 41(1), pages 184-196, December.
    • Handle: RePEc:taf:jnlbes:v:41:y:2022:i:1:p:184-196
    DOI: 10.1080/07350015.2021.2006670
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    Cited by:

    1. Ding, Jing & Jiang, Lei & Liu, Xiaohui & Peng, Liang, 2023. "Nonparametric tests for market timing ability using daily mutual fund returns," Journal of Economic Dynamics and Control, Elsevier, vol. 150(C).

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