Market timing: MAX and IRISK
| Treynor and Mazuy | Henriksson and Merton | |||||||
|---|---|---|---|---|---|---|---|---|
| α | βm | Adj. R2 | α | βm | Adj. R2 | |||
| LL | 0.064 (0.18) | 0.479*** (11.32) | −0.009*** (−4.76) | 38.32 | 0.713 (1.50) | 0.655*** (7.94) | −0.414*** (−3.56) | 35.44 |
| HL | 0.568 (1.16) | 0.916*** (15.47) | −0.013*** (−5.01) | 54.07 | 2.078*** (3.21) | 1.297*** (11.50) | −0.805*** (−5.06) | 54.17 |
| HH | −5.358*** (−7.67) | 0.985*** (11.64) | −0.007* (−1.91) | 41.28 | −4.921*** (−5.29) | 1.109*** (6.84) | −0.303 (−1.32) | 40.73 |
| HH–LL | −5.422 *** (−7.92) | 0.507 *** (6.17) | 0.002 (0.42) | −5.633 *** (−5.70) | 0.454 *** (2.67) | 0.111 (0.44) | ||
| HH–HL | −5.926 *** (−8.02) | 0.070 (0.87) | 0.006 (1.03) | −6.999*** (−6.79) | −0.188 (−1.40) | 0.502* (1.84) | ||
| LL | −0.020 (−0.06) | 0.451*** (11.03) | −0.008*** (−4.47) | 37.09 | 0.609 (1.34) | 0.620*** (7.81) | −0.390*** (−3.48) | 34.77 |
| HL | 0.458 (0.94) | 0.893*** (15.19) | −0.013*** (−5.17) | 53.08 | 1.994*** (3.10) | 1.281*** (11.43) | −0.821*** (−5.19) | 53.11 |
| HH | −5.277*** (−7.56) | 1.009 (11.94) | −0.009** (−2.47) | 42.00 | −4.665*** (−5.01) | 1.178*** (7.26) | −0.408* (−1.78) | 41.17 |
| HH–LL | −5.257 *** (−7.52) | 0.557 *** (7.39) | −0.001 (−0.32) | −5.274*** (−5.46) | 0.558*** (3.86) | −0.018 (−0.08) | ||
| HH–HL | −5.736 *** (−7.63) | 0.115 (1.39) | 0.004 (0.74) | −6.659 *** (−6.19) | −0.103 (−0.73) | 0.413 (1.45) | ||
| Treynor and Mazuy | Henriksson and Merton | |||||||
|---|---|---|---|---|---|---|---|---|
| Adj. | Adj. | |||||||
| LL | 0.064 (0.18) | 0.479 | −0.009 | 38.32 | 0.713 (1.50) | 0.655 | −0.414 | 35.44 |
| HL | 0.568 (1.16) | 0.916 | −0.013 | 54.07 | 2.078 | 1.297 | −0.805 | 54.17 |
| HH | −5.358 | 0.985 | −0.007 | 41.28 | −4.921 | 1.109 | −0.303 (−1.32) | 40.73 |
| HH–LL | −5.422 | 0.507 | 0.002 (0.42) | −5.633 | 0.454 | 0.111 (0.44) | ||
| HH–HL | −5.926 | 0.070 (0.87) | 0.006 (1.03) | −6.999 | −0.188 (−1.40) | 0.502 | ||
| LL | −0.020 (−0.06) | 0.451 | −0.008 | 37.09 | 0.609 (1.34) | 0.620 | −0.390 | 34.77 |
| HL | 0.458 (0.94) | 0.893 | −0.013 | 53.08 | 1.994 | 1.281 | −0.821 | 53.11 |
| HH | −5.277 | 1.009 (11.94) | −0.009 | 42.00 | −4.665 | 1.178 | −0.408 | 41.17 |
| HH–LL | −5.257 | 0.557 | −0.001 (−0.32) | −5.274 | 0.558 | −0.018 (−0.08) | ||
| HH–HL | −5.736 | 0.115 (1.39) | 0.004 (0.74) | −6.659 | −0.103 (−0.73) | 0.413 (1.45) | ||
Notes:
This table shows alphas, betas, and adjusted r-square of the market timing regression of the value-weighted double-sorted portfolios. First section reports the results using the Treynor and Mazuy (1966) regression with the squared market factor (), Second section reports the results using the Henriksson and Merton (1981) regression with option-like returns on the market(γm). The Newey and West (1987) robust t-statistics are in parentheses. HH corresponds to the portfolio of High Max and IRISK (High idiosyncratic volatility and High idiosyncratic skewness). HL corresponds to the portfolio of High Max and Low IRISK. LL corresponds to the portfolio of Low Max and Low IRISK. HH-HL corresponds to return on the long(HH) – short(HL) strategy. HH-LL is defined similarly. Asterisks denote the statistical significance level: * for 0.1, ** for 0.5, *** for 0.01
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