Sharpe Timing Ratio

Abstract

Many researchers have advocated measuring market timing performance by measuring the extent to which fund realized investment weight-shift is consistent with the realized asset return. However, the weight-shift approach ignores the market timing risk, which comes from the variation in market return. This article proposes a new measure, the Sharpe timing ratio, which incorporates the market timing risk into the measurement of market timing performance. Using an example, the authors demonstrate that compared with the weight-shift approach, the Sharpe timing ratio yields results that are more consistent with market realities in timing-risk scenarios