Duration Dependence, Behavioral Restrictions, and the Market Timing Ability of Commodity Trading Advisors

24 Pages Posted: 6 Sep 2017

See all articles by Gert Elaut

Gert Elaut

Ghent University; KBC Asset Management

Michael Frömmel

Ghent University - Department of Financial Economics

Alexander Mende

RPM Risk & Portfolio Management AB; University of Hannover

Date Written: September 2017

Abstract

This paper addresses a potential shortcoming in the work on the market timing ability of fund managers. We adapt the Henriksson‐Merton (1981) test for market timing by relaxing a behavioral assumption that is implicit in the use of daily data. To this end, we relax the assumption that managers base their market timing decisions on daily excess returns. Instead, we use results from the literature on bull and bear markets and test whether fund managers can successfully time such trends in financial markets. We make use of a proprietary dataset of daily Commodity Trading Advisors (CTAs) returns to show that CTAs, on average, are able to time the bull and bear markets we identify.

Suggested Citation

Elaut, Gert and Frömmel, Michael and Mende, Alexander, Duration Dependence, Behavioral Restrictions, and the Market Timing Ability of Commodity Trading Advisors (September 2017). International Review of Finance, Vol. 17, Issue 3, pp. 427-450, 2017. Available at SSRN: https://ssrn.com/abstract=3032181 or http://dx.doi.org/10.1111/irfi.12114

Gert Elaut (Contact Author)

Ghent University ( email )

Ghent, 9000
Belgium

KBC Asset Management ( email )

Havenlaan 6
Brussels
Belgium

Michael Frömmel

Ghent University - Department of Financial Economics ( email )

Sint-Pietersplein 5
Ghent, 9000
Belgium

Alexander Mende

RPM Risk & Portfolio Management AB ( email )

Stureplan 15
SE-111 45 Stockholm
Sweden

University of Hannover

Welfengarten 1
D-30167 Hannover, 30167
Germany

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