Monthly measurement of daily timers

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