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Correcting for Heteroscedasticity in Tests for Market Timing Ability

William Breen, Ravi Jagannathan and Aharon R. Ofer
The Journal of Business
Vol. 59, No. 4, Part 1 (Oct., 1986), pp. 585-598
Stable URL: http://www.jstor.org/stable/2353010
Page Count: 14
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Correcting for Heteroscedasticity in Tests for Market Timing Ability
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Abstract

In this paper we examine the parametric test proposed by Henriksson and Merton for evaluating the market timing ability of portfolio managers. Using simulation techniques we show that correction for heteroscedasticity can significantly affect the conclusions. We find that the heteroscedasticity corrections suggested by Hansen and by White are particularly effective.

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