4 ms·

How does outflow of capital from one asset to another measure investor's ability at timing the market? Yes, one pulls out on equity if one predicts that S&P500'

How does outflow of capital from one asset to another measure investor's ability at timing the market? Yes, one pulls out on equity if one predicts that S&P500's going to drop but most of times decisions are made based on the volatility and risk tolerance. A retirement fund with a closer retirement date or income/growth fund will pull out if they find the risk/volatility level of the general market to be unacceptable. A better measure of investor's ability to time the market is the performance of hedge funds as by its nature, the traders trades both sides of the market and performance is measured by their ability to predict both downward and upward trends.

bolu 15y ago
Good data for the performance of hedge funds as an asset class that account for survivorship bias is somewhat hard to find. Off hand, Swensen in "Unconventional Success" recounts that for a single decade period that he was looking at, third quartile managers matched the market before fees. So after the standard hedge fund fees investors in those funds underperformed the market by about 1.6% (in his specific decade-ending-dec-2003 time series example). Looking backwards, you can always identify fund managers that beat the market, but only in hindsight. One big part of this that's left unsaid is that yes it's possible to find managers to beat the market in hindsight, it's finding these managers ahead of time that's difficult & unlikely. Coupled with how much you'll trail the market if you try and don't succeed in finding outperformers ahead of time, it's a bit of a losing game to try. There's an entire other field of study about the persistence of performance, but suffice to say that looking in the rearview mirror for last decade's outperformers doesn't help you find the next decade's outperformers.

4 ms·

How does outflow of capital from one asset to another measure investor's ability at timing the market? Yes, one pulls out on equity if one predicts that S&P500'

by noname123 15y ago

bolu 15y ago
Good data for the performance of hedge funds as an asset class that account for survivorship bias is somewhat hard to find. Off hand, Swensen in "Unconventional Success" recounts that for a single decade period that he was looking at, third quartile managers matched the market before fees. So after the standard hedge fund fees investors in those funds underperformed the market by about 1.6% (in his specific decade-ending-dec-2003 time series example). Looking backwards, you can always identify fund managers that beat the market, but only in hindsight. One big part of this that's left unsaid is that yes it's possible to find managers to beat the market in hindsight, it's finding these managers ahead of time that's difficult & unlikely. Coupled with how much you'll trail the market if you try and don't succeed in finding outperformers ahead of time, it's a bit of a losing game to try. There's an entire other field of study about the persistence of performance, but suffice to say that looking in the rearview mirror for last decade's outperformers doesn't help you find the next decade's outperformers.