Journal of Business, Vol. 59, No. 2, pp. 217-235, 1986
31 Pages Posted: 21 Oct 2011 Last revised: 3 May 2012
Date Written: September 1, 1985
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.
Keywords: Portfolio Performance Evaluation, Market Timing, Performance Atribution
JEL Classification: G10, G11, G12
Suggested Citation: Suggested Citation
Jagannathan, Ravi and Korajczyk, Robert A., Assessing the Market Timing Performance of Managed Portfolios (September 1, 1985). Journal of Business, Vol. 59, No. 2, pp. 217-235, 1986. Available at SSRN: https://ssrn.com/abstract=1947323