Assessing the Market Timing Performance of Managed Portfolios
Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); SAIF; ISB
Robert A. Korajczyk
Northwestern University - Kellogg School of Management
September 1, 1985
Journal of Business, Vol. 59, No. 2, pp. 217-235, 1986
A number of techniques have been proposed to measure portfolio performance and to distinguish between performance due to forecasting security-specific returns and performance due to forecasting market-wide events. We show theoretically and empirically that it is possible to construct portfolios that show artificial timing ability when no true timing ability exists. In particular, investing in options or levered securities will show spurious market timing. These types of securities will also induce the negative correlation between measured selectivity and timing ability found by others. We suggest specification tests to help distinguish between spurious and true timing ability. In addition, the tests can be used to distinguish between different models of the manager's reaction function.
Number of Pages in PDF File: 31
Keywords: Portfolio Performance Evaluation, Market Timing, Performance Atribution
JEL Classification: G10, G11, G12Accepted Paper Series
Date posted: October 21, 2011 ; Last revised: May 3, 2012
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