Market Timing: Testing Market Timing Ability in the Egyptian Stock Market

51 Pages Posted: 22 Mar 2006

See all articles by Yasmin H. Abdel Razek

Yasmin H. Abdel Razek

Ministry of Finance

Said T. Ebeid

Ain Shams University - Faculty of Commerce

Date Written: March 2007

Abstract

This research is dedicated to test the market timing ability in the Egyptian stock market. Any investor is always making a decision of whether to follow an active strategy or a passive one. Active strategists implicitly believe that the market is not efficient and that stock prices follow patterns that can be identified enabling them to achieve superior return to the market. Passive strategists believe in the Efficient Market Hypothesis (EMH); i.e. that stocks do not depart from their fir economic values for long periods of time unjustifiable. They also believe that stock prices do not follow any pattern rather they believe in the random walk hypothesis.

Market timers represent the active strategists school of thinking and Buy and Hold represent the passive strategists school. Our mission was to get the price data for the most active 30 stocks in the Egyptian stock market collectively listed in the CASE 30 index and derive return data from them. Then we regress the results according to the two most widely used models to test market timing ability; these being: (1) Treynor/Mazuy Model and (2) Henriksson/Merton Model.

Using empirical modeling has lead us to the conclusion that there is no market timing ability in the Egyptian stock market and that an investor in this market is better of with a buy and hold strategy. We also concluded that there is a possibility of getting the same return on the market using less stocks in the portfolio provided that they are carefully selected based on their return history and their correlation to the rest of the stocks in the portfolio.

Keywords: Market Timing, Buy-and-Hold, Investment Strategy

JEL Classification: G11, G14, G19

Suggested Citation

Abdel Razek, Yasmin H. and Ebeid, Said T., Market Timing: Testing Market Timing Ability in the Egyptian Stock Market (March 2007). Available at SSRN: https://ssrn.com/abstract=892743 or http://dx.doi.org/10.2139/ssrn.892743

Yasmin H. Abdel Razek (Contact Author)

Ministry of Finance ( email )

Ministry of Finance Towers, Tower # 2
Imtedad Ramsis, Nasr City
11635 Cairo
Egypt

HOME PAGE: http://mof.gov.eg/english

Said T. Ebeid

Ain Shams University - Faculty of Commerce ( email )

Abbassia 11566, Cairo
Egypt

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