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Data Snooping and Market-Timing Rule Performance

52 Pages Posted: 18 Feb 2009 Last revised: 19 Jul 2013

Andreas Neuhierl

University of Notre Dame - Department of Finance

Bernd Schlusche

Board of Governors of the Federal Reserve System

Date Written: February 15, 2009

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.

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

JEL Classification: G11, G14

Suggested Citation

Neuhierl, Andreas and Schlusche, Bernd, Data Snooping and Market-Timing Rule Performance (February 15, 2009). Available at SSRN: https://ssrn.com/abstract=1343896 or http://dx.doi.org/10.2139/ssrn.1343896

Andreas Neuhierl

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Bernd Schlusche (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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