Duration Dependence, Behavioral Restrictions, and the Market Timing Ability of Commodity Trading Advisors

This paper addresses a potential shortcoming in the work on the market timing ability of fund managers. We adapt the Henriksson-Merton (1981) test for market timing by relaxing a behavioral assumption that is implicit in the use of daily data. To this end, we relax the assumption that managers base their market timing decisions on daily excess returns. Instead, we use results from the literature on bull and bear markets and test whether fund managers can successfully time such trends in financial markets. We make use of a proprietary dataset of daily Commodity Trading Advisors (CTAs) returns to show that CTAs, on average, are able to time the bull and bear markets we identify.