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Duration dependence, behavioral restrictions, and the market timing ability of commodity trading advisors

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Abstract
This paper addresses a potential shortcoming in the work on the market timing ability of fund managers. We adapt the Henriksson-Merton (1981) test for market timing by relaxing a behavioral assumption that is implicit in the use of daily data. To this end, we relax the assumption that managers base their market timing decisions on daily excess returns. Instead, we use results from the literature on bull and bear markets and test whether fund managers can successfully time such trends in financial markets. We make use of a proprietary dataset of daily Commodity Trading Advisors (CTAs) returns to show that CTAs, on average, are able to time the bull and bear markets we identify.
Keywords
Market timing, performance measurement, efficient market hypothesis, commodity trading advisors, managed futures, trend decomposition

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Citation

Please use this url to cite or link to this publication:

Chicago
Elaut, Gert, Michael Frömmel, and Alexander Mende. 2017. “Duration Dependence, Behavioral Restrictions, and the Market Timing Ability of Commodity Trading Advisors.” Ed. Henry Cao. International Review of Finance  17 (3): 427–450.
APA
Elaut, G., Frömmel, M., & Mende, A. (2017). Duration dependence, behavioral restrictions, and the market timing ability of commodity trading advisors. (Henry Cao, Ed.)INTERNATIONAL REVIEW OF FINANCE  , 17(3), 427–450.
Vancouver
1.
Elaut G, Frömmel M, Mende A. Duration dependence, behavioral restrictions, and the market timing ability of commodity trading advisors. Cao H, editor. INTERNATIONAL REVIEW OF FINANCE  . Wiley; 2017;17(3):427–50.
MLA
Elaut, Gert, Michael Frömmel, and Alexander Mende. “Duration Dependence, Behavioral Restrictions, and the Market Timing Ability of Commodity Trading Advisors.” Ed. Henry Cao. INTERNATIONAL REVIEW OF FINANCE  17.3 (2017): 427–450. Print.
@article{8157402,
  abstract     = {This paper addresses a potential shortcoming in the work on the market
timing ability of fund managers. We adapt the Henriksson-Merton (1981) test
for market timing by relaxing a behavioral assumption that is implicit in the
use of daily data. To this end, we relax the assumption that managers base
their market timing decisions on daily excess returns. Instead, we use results
from the literature on bull and bear markets and test whether fund managers
can successfully time such trends in financial markets. We make use of a proprietary
dataset of daily Commodity Trading Advisors (CTAs) returns to show
that CTAs, on average, are able to time the bull and bear markets we identify.},
  author       = {Elaut, Gert and Fr{\"o}mmel, Michael and Mende, Alexander},
  editor       = {Cao, Henry},
  issn         = {1468-2443},
  journal      = {INTERNATIONAL REVIEW OF FINANCE                            },
  language     = {eng},
  number       = {3},
  pages        = {427--450},
  publisher    = {Wiley},
  title        = {Duration dependence, behavioral restrictions, and the market timing ability of commodity trading advisors},
  url          = {http://dx.doi.org/10.1111/irfi.12114},
  volume       = {17},
  year         = {2017},
}

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