Oct 29, 2010

which is more superior?


Fama (1972) indicates that there are two ways for fund managers to obtain abnormal returns. The first one is security analysis, which is the ability of fund managers to identify the potential winning securities. The second one is market timing, which is the ability of portfolio managers to time market cycles and take advantage of this ability in trading securities.
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2 comments:

  1. yj-October 30, 2010 at 1:16 AM

    doesn't later empirical work show that market timing doesn't work?

    i don't know about security analysis though.

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  2. jansen koOctober 30, 2010 at 1:18 PM

    hmmm not sure about empirical studies showing whether market timing works or not.

    but am sure that several of my finance professors 'timed the market' and entered aggressively when the market bottomed out in march 08. they used historical price earnings ratios, amongst other indicators, to guide their decision making.

    to quote them, 'i can retire happily now'

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