Risks associated with market timing under different market conditions

Abstract

This study assesses the risk/return profile of three market timing strategies namely traditional, bull and bear timing under different market conditions on the Johannesburg Stock Exchange. The results indicate that market timing does lead to a lower variability of returns than a buy-and-hold strategy. On a risk-adjusted basis the required forecasting ability necessary to outperform the market is lower than previously thought. Under bearish conditions a random guess is expected to yield returns above the risk-adjusted market return regardless of the timing strategy employed.