New Study Shows How Market Timing Strategies May Be Enhanced
Those are among the conclusions of “On the Expected Performance of Market Timing Strategies,” a study by Winfried G. Hallerbach, a researcher in the quantitative strategies division of Robeco Investment Management and former professor at Erasmus University in Rotterdam.
For anyone interested in the theory or practice of market timing, the study looks at what information ratios can be expected from market timing strategies in different settings. Hallerbach separates “time series breadth” (the timing frequency per strategy) from “cross-section breadth” (the number of separate sub-strategies) because they contribute differently to performance.
Hallerbach cites studies showing that success ratios of at least 60% would be required to beat a buy-and-hold benchmark, and his study is designed to find out what information ratio you can expect on a timing strategy based on the success ratio, the timing frequency and the number of timed positions.
Hallerbach says his results “can be used as a benchmark for and reality check on the back tested performance of timing strategies.”
To download the study, go to this link on the Social Science Research Network and click on “One-Click Download” at the top.
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