Data Snooping and Market-Timing Rule Performance

Abstract:     
We reassess the performance of market-timing rules when controlling for data-snooping biases. For the first time, a comprehensive set of simple and complex market-timing rules is examined and tested for statistical significance, using the White (2000) 'Reality Check," the Hansen (2005) SPA test, as well as their stepwise extensions by Romano and Wolf (2005) and Hsu et al. (2009). Even though individual market-timing rules significantly outperform a buy-and-hold strategy at both daily and monthly frequencies when considered in isolation, their outperformance, generally, does not remain significant after correcting for data snooping. Relative to the alternative of investing in the risk-free rate, however, we find significant outperformance of the best rules, even after data-snooping adjustment, when testing at a monthly timing frequency.

Number of Pages in PDF File: 52

Keywords: Market Timing, Data Snooping, Multiple Testing, Reality Check, SPA Test, Stepwise Method

JEL Classification: G11, G14

working papers series