In this session, we look the track record of market timers. We begin with mutual funds and note that the cash holdings of mutual funds are implicit measures of market timing, increasing when funds are bearish and decreasing when they are bullish. We find little evidence of market timing ability either among mutual fund managers, in general, or even among just tactical asset allocation funds. The evidence is a little more positive for hedge funds, insofar as some of them are better at forecasting forthcoming changes in liquidity and adjusting their portfolios accordingly. Neither investment newsletter writers nor market strategists are investment banks seem to do well at timing markets. Notwithstanding this evidence, we look at four ways in which investors can bring market timing into their portfolios: through the asset allocation decision, by switching investment styles ahead of market shifts, by rotating through sectors as the economy evolves or by speculating using index options or futures.
