Reference : The alpha of a market timer

	Document type :	Scientific congresses and symposiums : Unpublished conference
	Discipline(s) :	Business & economic sciences : Finance
	To cite this reference:	http://hdl.handle.net/2268/118384

Title :	The alpha of a market timer
Language :	English
Author, co-author :	Hübner, Georges [Université de Liège - ULg > HEC-Ecole de gestion de l'ULg : UER > Gestion financière >]
Publication date :	23-Jun-2011
Audience :	International
Event name :	European Financial Management Association 2011 Annual Meeting
Event date :	du 21 au 23 juin 2011
Event organizer :	European Financial Management Association
Event place (city) :	Braga
Event country :	Portugal
Keywords :	[en] Performance measurement ; market timing ; mutual fund performance
Abstract :	[en] The Treynor and Mazuy framework is a widely used return-based model of market timing, but existing corrections of the regression intercept can be manipulated through derivatives trading. We propose an adjustment based on Merton's option replication approach. The linear and quadratic coefficients of the regression are exploited to assess the cost of the replicating option that yields similar convexity for a passive portfolio. A similar reasoning applies for various timing patterns and in multi-factor models. Our empirical application shows that, unlike existing performance adjustment methods, the portfolio replication approach uncovers a positive link between the convexity and the performance of market timing funds.
Target :	Researchers
Permalink :	http://hdl.handle.net/2268/118384

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