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Market timing with aggregate accruals

Author

Listed:
  • Qiang Kang
  • Qiao Liu

    (School of Economics and Finance, University of Hong Kong)

  • Rong Qi

    (School of Economics and Finance, University of Hong Kong)

Abstract

We propose a market-timing strategy that aims to exploit aggregate accruals' return forecasting power. Using several performance measures of the aggregate accruals-based market-timing strategy, such as excess portfolio return, Sharpe ratio, and Jensen's alpha, we find robust evidence that, relative to the passive investment strategy of buying and holding the stock market, the market-timing strategy delivers superior performance that is both statistically and economically significant. Specifically, on average, the market-timing strategy beats the S&P500 index by 6 to 22 percentage points (annualized) after controlling for transaction costs over the 1980–2004 period.

Suggested Citation

  • Qiang Kang & Qiao Liu & Rong Qi, 2009. "Market timing with aggregate accruals," Journal of Asset Management, Palgrave Macmillan, vol. 10(3), pages 170-180, August.
    • Handle: RePEc:pal:assmgt:v:10:y:2009:i:3:d:10.1057_jam.2009.5
    DOI: 10.1057/jam.2009.5
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    References listed on IDEAS

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    1. Hui Guo & Robert F. Whitelaw, 2006. "Uncovering the Risk–Return Relation in the Stock Market," Journal of Finance, American Finance Association, vol. 61(3), pages 1433-1463, June.
    2. Balduzzi, Pierluigi & Lynch, Anthony W., 1999. "Transaction costs and predictability: some utility cost calculations," Journal of Financial Economics, Elsevier, vol. 52(1), pages 47-78, April.
    3. Jeeman Jung & Robert J. Shiller, 2005. "Samuelson's Dictum and the Stock Market," Economic Inquiry, Western Economic Association International, vol. 43(2), pages 221-228, April.
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