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Primary Article

Black Swans and Market Timing

How Not To Generate Alpha

Javier Estrada
The Journal of Investing Fall 2008, 17 (3) 20-34; DOI: https://doi.org/10.3905/joi.2008.710917
Javier Estrada
A professor of finance at IESE Business School in Barcelona, Spain.
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Abstract

Do investors obtain their long-term returns smoothly and steadily over time, or is their long-term performance largely determined by the return of just a few outliers? How likely are investors to successfully predict the best days to be in and out of the market? The evidence from 15 international equity markets and more than 160,000 daily returns indicates that a few outliers have a massive impact on long-term performance. On average across all 15 markets, missing the best 10 days resulted in portfolios 50.8% less valuable than a passive investment; and avoiding the worst 10 days resulted in portfolios 150.4% more valuable than a passive investment. Given that 10 days represent less than 0.1% of the days considered in the average market, the odds against successful market timing are staggering.

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The Journal of Investing
Vol. 17, Issue 3
Fall 2008
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Black Swans and Market Timing
Javier Estrada
The Journal of Investing Aug 2008, 17 (3) 20-34; DOI: 10.3905/joi.2008.710917

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Black Swans and Market Timing
Javier Estrada
The Journal of Investing Aug 2008, 17 (3) 20-34; DOI: 10.3905/joi.2008.710917
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