Jensen's alpha and the market‐timing puzzle
- Theory predicts that market‐timing activities bias Jensen's alpha (JA). However, empirical studies have failed to find consistent evidence of this bias. We tackle this puzzle in a nested model analysis and show that the bias contains an exogenous market component that is unrelated to market‐timing skill. In a comprehensive empirical analysis of US mutual funds, we find that the timing‐induced bias in JA is mainly driven by this market component, which is uncorrelated with measured timing activities. Measures of total performance that allow for timing activities are virtually identical to JA, even if timing activities are present in the evaluated fund. Hence, we conclude that JA is a sufficient measure of total performance.
| Author of HS Reutlingen | Bunnenberg, Sebastian |
|---|---|
| URN: | urn:nbn:de:bsz:rt2-opus4-22303 |
| DOI: | https://doi.org/10.1002/rfe.1033 |
| ISSN: | 1058-3300 |
| eISSN: | 1873-5924 |
| Erschienen in: | Review of financial economics : RFE |
| Publisher: | Wiley |
| Place of publication: | Hoboken, NJ |
| Document Type: | Article |
| Language: | English |
| Year of Publication: | 2019 |
| Tag: | market‐timing; mutual fund performance; stock selection; total performance |
| Volume: | 37 |
| Issue: | 2 |
| Page Number: | 22 |
| First Page: | 234 |
| Last Page: | 255 |
| DDC classes: | 650 Management |
| Open Access?: | Nein |
| Licence (German): |  Lizenzbedingungen Wiley |
