Market Timing Ability and Volatility Implied in Investment Newsletters' Asset Allocation Recommendations
47 Pages Posted: 3 Sep 1999
Date Written: February 1995
Abstract
We analyze the advice contained in a sample of 237 investment strategies over the 1980-1992 period. Each newsletter strategy recommends a mix of equity and cash. We construct portfolios based on these recommendations and find that only a small number of the newsletters appear to have higher average returns than passive portfolios constructed to have the same returns variance. We test the timing abilities of newsletters by examining how often newsletters correctly change their equity weights. Our evidnece shows that the newsletters offer unimpressive asset allocation advice. Knowledge of the asset allocation weights also implies knowledge of the exact conditional betas. As a result, we present direct tests of market timing ability that bypass beta estimation problems. Assuming that different letters cater to investors with different risk aversions, we are able to infer each newsletter's forecasted market returns. The standard deviation of newsletters' forecasts provides a natural measure of disagreement in the market. We find that the degree of disagreement contains information about both market volatility and trading activity.
Keywords: Newsletter performance, market timing
JEL Classification: G11
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Risk Taking by Mutual Funds as a Response to Incentives
By Judith A. Chevalier and Glenn Ellison
-
Mutual Fund Flows and Performance in Rational Markets
By Richard C. Green and Jonathan Berk
-
Mutual Fund Flows and Performance in Rational Markets
By Richard C. Green and Jonathan Berk
-
Career Concerns of Mutual Fund Managers
By Judith A. Chevalier and Glenn Ellison
-
Career Concerns of Mutual Fund Managers
By Judith A. Chevalier and Glenn Ellison
-
The Persistence of Risk-Adjusted Mutual Fund Performance
By Edwin J. Elton, Martin J. Gruber, ...
-
By Judith A. Chevalier and Glenn Ellison
-
Hot Hands in Mutual Funds: the Persistence of Performance, 1974-87
By Darryll Hendricks, Jayendu Patel, ...
-
By Narasimhan Jegadeesh, Hsiu-lang Chen, ...