Abstract
Under the assumption of perfect foresight, the paper overlooks the one of two elements of market timing: market return sign forecasting. With that, the paper focuses on the second: the ability to constitute a portfolio with the most “relevant” assets. This paper looks exclusively on the impact of betas, and how different variations and methods of estimating betas better or worsen the market timing ability. The results show that beta values, constant or time-varying, play a pivotal role in market timing strategies. The paper also touches on the case of imperfect foresight, using empirically-backed methods of forecasting market direction.
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