Timing Multiple Markets: Theory and Evidence

48 Pages Posted: 24 Jul 2003

See all articles by George O. Aragon

George O. Aragon

Arizona State University (ASU) - Finance Department

Date Written: November 2002

Abstract

I extend the classical market timing model of Merton (1981) to the case of multiple risk factors and derive the equilibrium value of a market timer's forecasting ability. This result implies a class of return-based parametric estimators that allow consistent estimation of a portfolio manager's ability to 'time multiple markets.' I apply these tests to evaluate the performance of 'fund of funds' hedge fund managers and show that, both individually and on aggregate, fund of funds managers do not exhibit timing ability with respect to a variety of hedge fund styles. However, I argue that this result is due to liquidity constraints created by the hedge funds into which these vehicles invest.

Note: Previously titled "Style Timing"

Keywords: Performance Evaluation, Market Timing, Styles, Hedge Funds

JEL Classification: G11, G12, G13

Suggested Citation

Aragon, George O., Timing Multiple Markets: Theory and Evidence (November 2002). Available at SSRN: https://ssrn.com/abstract=415740 or http://dx.doi.org/10.2139/ssrn.415740

George O. Aragon (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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