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.
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