CHAPTER 13Market Timing

The successful prediction of the direction of the market relative to other asset classes such as cash can produce substantial payoffs for investors. The ability to profitably move from one asset class to another is called market timing skill. A long-only equity investor rarely moves from equities to fixed income. However, for situations where managers do have the ability to change their portfolios according to market conditions several different methodologies have been developed for measuring this timing ability. In this chapter we review several of these methodologies.


Merton and Henriksson developed a test based on the idea that an investor who is able to time markets can be modeled ...

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