Mutual Fund Market Timing: Daily Evidence

Abstract

We use the dynamic conditional correlation (DCC) model to estimate daily-frequency mutual fund betas. Compared to traditional estimates, daily betas better capture changes in fund risk stemming from daily fund trading activity. Based on these beta estimates and a two-stage estimation procedure, we find significant evidence of market timing ability among actively managed U.S. equity funds that is not apparent via standard approaches. Unlike traditional estimates, our timing estimates correlate positively with fund performance, consistent with the intuition that market timing enhances total returns. Market timing is especially evident during down markets, and successful timers exhibit low downside risk.