On Swiss Timing and Selectivity: In the Quest of Alpha

Financial Markets and Portfolio Management, Vol. 15, No. 2, 2001

Posted: 6 Sep 2005

See all articles by Francois Lhabitant

Francois Lhabitant

Kedge Capital Fund Management; EDHEC Business School

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Abstract

This paper presents an overview of the theories underlying the major portfolio performance measurement models, with an empirical application to assess the market timing and stock-picking abilities of an exhaustive sample of 60 Swiss-equity investment funds over the 1977-1999 period. Regardless of the benchmark portfolio or the performance measurement model, we find no evidence that Swiss-equity mutual funds, either individually or as a whole, provide investors with superior stock selection or market timing relative to a passively managed benchmark portfolio. We also found a negative correlation between selectivity and timing results. Finally, the influence of asset size, funds age and management fees are considered as an explanation of the results. In contrast to traditional methods of calculating the expected costs of risk in banks, the calculation with rating transition matrices includes the possible temporal courses of credit defaults and default probabilities and leads to more precise results. In our paper, we analyze some structural properties of rating transition matrices with regard to future expected portfolio structures, and we derive formulas for the calculation of the net present value with the help of rating transition matrices. From a methodological point of view, the approach is a straightforward refinement of traditional approaches of calculating costs of risk.

JEL Classification: G0, G1

Suggested Citation

Lhabitant, Francois-Serge, On Swiss Timing and Selectivity: In the Quest of Alpha. Financial Markets and Portfolio Management, Vol. 15, No. 2, 2001. Available at SSRN: https://ssrn.com/abstract=795945

Francois-Serge Lhabitant (Contact Author)

Kedge Capital Fund Management ( email )

28-30 The Parade
St Helier, JE1 1ZZ
Jersey

HOME PAGE: http://www.lhabitant.net

EDHEC Business School ( email )

393 Prom. des Anglais
Nice, 06200
France

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