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Market timing: Recent development and a new test

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  • Chou, Cheng
  • Chu, Chia-Shang J.

Abstract

Henriksson-Merton's market timing test suffers nontrivial size distortion when the event forecast is autocorrelated. A new test is suggested to detect the dependence of two autocorrelated binary time series. It complements the existing tests due to better test power.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:ecolet:v:111:y:2011:i:2:p:105-109
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    References listed on IDEAS

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    1. Henriksson, Roy D & Merton, Robert C, 1981. "On Market Timing and Investment Performance. II. Statistical Procedures for Evaluating Forecasting Skills," The Journal of Business, University of Chicago Press, vol. 54(4), pages 513-533, October.
    2. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-858, May.
    3. repec:bla:jfinan:v:44:y:1989:i:5:p:1177-89 is not listed on IDEAS
    4. Chu, Chia-Shang & Lu, Liping & Shi, Zhentao, 2009. "Pitfalls in market timing test," Economics Letters, Elsevier, vol. 103(3), pages 123-126, June.
    5. Marquering, Wessel & Verbeek, Marno, 2004. "A multivariate nonparametric test for return and volatility timing," Finance Research Letters, Elsevier, vol. 1(4), pages 250-260, December.
    6. Chou, Cheng & Chu, Chia-Shang J., 2010. "Testing independence of two autocorrelated binary time series," Statistics & Probability Letters, Elsevier, vol. 80(1), pages 69-75, January.
    7. Cumby, Robert E. & Modest, David M., 1987. "Testing for market timing ability : A framework for forecast evaluation," Journal of Financial Economics, Elsevier, vol. 19(1), pages 169-189, September.
    8. Jiang, Wei, 2003. "A nonparametric test of market timing," Journal of Empirical Finance, Elsevier, vol. 10(4), pages 399-425, September.
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    Citations

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    Cited by:

    1. Tsuchiya, Yoichi, 2013. "Are government and IMF forecasts useful? An application of a new market-timing test," Economics Letters, Elsevier, vol. 118(1), pages 118-120.
    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. Tsuchiya, Yoichi, 2013. "Do corporate executives have accurate predictions for the economy? A directional analysis," Economic Modelling, Elsevier, vol. 30(C), pages 167-174.
    6. 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.
    7. Tsuchiya, Yoichi, 2016. "Do production managers predict turning points? A directional analysis," Economic Modelling, Elsevier, vol. 58(C), pages 1-8.
    8. 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.
    9. 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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