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Pitfalls in market timing test

Chia-Shang Chu, Liping Lu and Zhentao Shi

Economics Letters, 2009, vol. 103, issue 3, 123-126

Abstract: Henriksson and Merton's market timing test suffers nontrivial size distortion when the observations are serially dependent sequences. Potential danger of finding spurious timing ability can be avoided by implementing a Markov regression that includes the lagged dependent variables as additional explanatory variables.

Keywords: Market; timing; test; Markov; regression; Spurious; regression (search for similar items in EconPapers)
Date: 2009
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