Market Timing

Portfolio Construction, Measurement, and Efficiency: Essays in Honor of Jack Treynor, edited by John Guerard, Jr., Springer International Publishers, 2017, pp.49-71

27 Pages Posted: 2 Nov 2014 Last revised: 6 Feb 2017

See all articles by Ravi Jagannathan

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

Date Written: May 16, 2016

Abstract

The work of Treynor and Mazuy (1966) spawned an extensive literature on returns-based measurement of portfolio performance which distinguishes between a manager's ability to act on information specific to an individual asset (asset selection) and ability to forecast systematic risk premiums and adjust portfolio exposures accordingly (market, or factor, timing). In a world in which dynamic trading strategies and derivative securities that provide payoffs which are nonlinear in factor returns, obtaining a clear separation between asset selection and market timing is difficult. Additionally, predictability of risk premiums causes a confounding of timing based on public information versus true skill. However, disaggregating the measurement of the components allows us to obtain more accurate measures of the quantity of interest, total portfolio performance.

Keywords: Market Timing, Portfolio Performance, Return-Based Performance

JEL Classification: G1, G11, G12

Suggested Citation

Jagannathan, Ravi and Korajczyk, Robert A., Market Timing (May 16, 2016). Portfolio Construction, Measurement, and Efficiency: Essays in Honor of Jack Treynor, edited by John Guerard, Jr., Springer International Publishers, 2017, pp.49-71. Available at SSRN: https://ssrn.com/abstract=2516550 or http://dx.doi.org/10.2139/ssrn.2516550

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 ( email )

Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208-0898
United States
847-491-8336 (Phone)
847-491-7781 (Fax)

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

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