Assessing the Market Timing Performance of Managed Portfolios

Journal of Business, Vol. 59, No. 2, pp. 217-235, 1986

31 Pages Posted: 21 Oct 2011 Last revised: 3 May 2012

Ravi Jagannathan

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Indian School of Business (ISB), Hyderabad

Robert A. Korajczyk

Northwestern University - Kellogg School of Management

Date Written: September 1, 1985

Abstract

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

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

Ravi Jagannathan

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
429 Andersen Hall
Evanston, IL 60208
United States
847-491-8338 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Robert A. Korajczyk (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208
United States
847-491-8336 (Phone)
847-491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/korajczyk_robert.aspx#research

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