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Performance Evaluation of Market Timers

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  • Alex Kane
  • Stephen Gary Marks

Abstract

Previous investigators have shown that the Sharpe measure of the performance of a managed portfolio may be flawed when the portfolio manager has market timing ability. We develop the exact conditions under which the Sharpe measure will completely and correctly order market timers according to ability. The derived conditions are necessary, sufficient, and observable. We compare them to empirical estimates of actual market conditions, and find that the circumstances which can lead to a failure of the Sharpe measure do in fact occur. We show, however, that such failures can be greatly reduced by more frequent sampling.

Suggested Citation

  • Alex Kane & Stephen Gary Marks, 1988. "Performance Evaluation of Market Timers," NBER Working Papers 2640, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2640
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    References listed on IDEAS

    as
    1. Chang, Eric C & Lewellen, Wilbur G, 1984. "Market Timing and Mutual Fund Investment Performance," The Journal of Business, University of Chicago Press, vol. 57(1), pages 57-72, January.
    2. Admati, Anat R & Ross, Stephen A, 1985. "Measuring Investment Performance in a Rational Expectations Equilibrium Model," The Journal of Business, University of Chicago Press, vol. 58(1), pages 1-26, January.
    3. Alex Kane & Young Ki Lee, 1983. "The Forecasting Ability of Money Market Fund Managers and its Economic Value," NBER Working Papers 1243, National Bureau of Economic Research, Inc.
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    Cited by:

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