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Benchmark Timing regression (below) is used to evaluate market timing skills of a portfolio manager. A successful market timer will correctly foresee the future directions of the market and will load the portfolio with high beta stocks (low beta stocks) for pending up market (down market).
RP(t) = αP + BP × RB(t) + MTCP(Dt × RB(t)) + εP(t)Regression on twelve years of portfolio returns produces an estimate of MTCP = 4.3 with a standard error of 1.4. These results offer an evidence of a market timing strategy:
A. I, II, and III. B. I, II, and IV. C. II, III, and IV. D. I, II, III, and IV. |