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Pitfalls in market timing test

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  • Chu, Chia-Shang
  • Lu, Liping
  • Shi, Zhentao

Abstract

Henriksson and Merton's market timing test suffers nontrivial size distortion when the observations are serially dependent sequences. Potential danger of finding spurious timing ability can be avoided by implementing a Markov regression that includes the lagged dependent variables as additional explanatory variables.

Suggested Citation

  • Chu, Chia-Shang & Lu, Liping & Shi, Zhentao, 2009. "Pitfalls in market timing test," Economics Letters, Elsevier, vol. 103(3), pages 123-126, June.
    • Handle: RePEc:eee:ecolet:v:103:y:2009:i:3:p:123-126
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    Cited by:

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    2. Tsuchiya, Yoichi, 2016. "Directional analysis of fiscal sustainability: Revisiting Domar's debt sustainability condition," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 189-201.
    3. Y. Tsuchiya, 2014. "A directional evaluation of corporate executives' exchange rate forecasts," Applied Economics, Taylor & Francis Journals, vol. 46(1), pages 95-101, January.
    4. Blaskowitz, Oliver & Herwartz, Helmut, 2014. "Testing the value of directional forecasts in the presence of serial correlation," International Journal of Forecasting, Elsevier, vol. 30(1), pages 30-42.
    5. Chou, Cheng & Chu, Chia-Shang J., 2011. "Market timing: Recent development and a new test," Economics Letters, Elsevier, vol. 111(2), pages 105-109, May.
    6. Tsuchiya, Yoichi, 2013. "Do corporate executives have accurate predictions for the economy? A directional analysis," Economic Modelling, Elsevier, vol. 30(C), pages 167-174.
    7. Young Bin Ahn & Yoichi Tsuchiya, 2016. "Directional analysis of consumers’ forecasts of inflation in a small open economy: evidence from South Korea," Applied Economics, Taylor & Francis Journals, vol. 48(10), pages 854-864, February.
    8. Tsuchiya, Yoichi, 2016. "Do production managers predict turning points? A directional analysis," Economic Modelling, Elsevier, vol. 58(C), pages 1-8.
    9. Y. Tsuchiya, 2014. "Are consumer sentiments useful in Japan? An application of a new market-timing test," Applied Economics Letters, Taylor & Francis Journals, vol. 21(5), pages 356-359, March.
    10. Tsuchiya, Yoichi, 2014. "Purchasing and supply managers provide early clues on the direction of the US economy: An application of a new market-timing test," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 599-618.

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