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Article

On the Expected Performance of Market
Timing Strategies

Winfried G. Hallerbach
The Journal of Portfolio Management Summer 2014, 40 (4) 42-51; DOI: https://doi.org/10.3905/jpm.2014.40.4.042
Winfried G. Hallerbach
is a senior researcher at Quantitative Strategies, Robeco Investment Management, in Rotterdam, The Netherlands.
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  • For correspondence: w.hallerbach@robeco.com
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Abstract

The author derives expressions for the information ratio (IR) that can be expected from directional market-timing strategies. The results hold as accurate approximations and lift the Fundamental Law of Active Management proposed by Richard Grinold in 1989 to an operational level. In addition, the author separates time series-breadth (the timing frequency per strategy) from cross-section breadth (the number of separate markets), because they contribute differently to performance. The author shows that implementing volatility-weighted bet sizes, both in the time series context of a single underlying market and in the cross-section context of multiple markets, increases the expected timing IR. His theoretical results can be used as a benchmark for and reality check on the back-tested performance of timing strategies. He confirms the accuracy of his results by simulating timing strategies for equities and fixed income.

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The Journal of Portfolio Management: 40 (4)
The Journal of Portfolio Management
Vol. 40, Issue 4
Summer 2014
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On the Expected Performance of Market
Timing Strategies
Winfried G. Hallerbach
The Journal of Portfolio Management Jul 2014, 40 (4) 42-51; DOI: 10.3905/jpm.2014.40.4.042

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On the Expected Performance of Market
Timing Strategies
Winfried G. Hallerbach
The Journal of Portfolio Management Jul 2014, 40 (4) 42-51; DOI: 10.3905/jpm.2014.40.4.042
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  • Article
    • Abstract
    • THE FUNDAMENTAL LAW OF ACTIVE MANAGEMENT
    • PROPORTIONAL BET SIZES
    • DIRECTIONAL FORECASTS
    • CROSS-SECTION VERSUS TIME-SERIES BREADTH
    • SOME EXTENSIONS
    • EMPIRICAL ILLUSTRATION
    • SUMMARY
    • APPENDIX
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

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