Mutual fund alpha and daily market-timing ability

Abstract

Purpose

This study aims to examine whether mutual funds can earn daily alpha and time daily market return.

Design/methodology/approach

Based on the Treynor and Mazuy (1966) model and the Henriksson and Merton (1981) model, the author tests the daily market-timing ability of actual mutual funds and bootstrapped mutual funds.

Findings

The author finds that daily alpha and daily market-timing ability can come from pure luck. In addition, the relation between fund alpha and market-timing ability is at best minimal.

Originality/value

Using bootstrapped funds as the benchmark, this study shows that daily fund market is overall efficient.

Citation

Bu, Q. (2019), "Mutual fund alpha and daily market-timing ability", Studies in Economics and Finance, Vol. 36 No. 4, pp. 662-681. https://doi.org/10.1108/SEF-09-2018-0277