Papers by Allan Timmermann
International Journal of Forecasting, 2013
ABSTRACT This paper explores the gains from combining expert forecasts from the ECB Survey of Pro... more ABSTRACT This paper explores the gains from combining expert forecasts from the ECB Survey of Professional Forecasters (SPF). The analysis encompasses combinations based on principal components and trimmed means, performance-based weighting, and least squares estimates of optimal weights, as well as Bayesian shrinkage. For GDP growth and the unemployment rate, only few of the individual forecast combination schemes outperform the simple equally weighted average forecast in a pseudo-out-of-sample analysis, while there is stronger evidence of improvement over this benchmark for the inflation rate. Nonetheless, when we account for the effect of multiple model comparisons through White’s reality check, the results caution against any assumption that the improvements identified would persist in the future.
We apply an innovative bootstrap statistical technique to examine the performance of the U.S. equ... more We apply an innovative bootstrap statistical technique to examine the performance of the U.S. equity mutual fund industry during the 1962 to 1994 period. Using this new method, we bootstrap the distribution of the performance measure (the "alpha") across mutual funds to determine whether funds with the best alphas are simply lucky, or whether managers of these funds possess genuine stockpicking skills---this bootstrap technique is necessary because of the complicated form of the distribution of alphas across funds and the non-normal nature of individual funds' alphas. Our results indicate that, controlling for luck, fund managers that pick stocks well enough to more than cover their costs do exist. That is, the distribution of alphas computed from bootstrapped fund returns (and assuming that no stockpicking talent exists) has a much smaller right tail than the distribution of alphas computed from actual fund returns. Unfortunately for investors, our bootstrap results a...
SSRN Electronic Journal, 2000
This paper proposes a new tractable approach to solving multiMperiod asset allocation probM lems.... more This paper proposes a new tractable approach to solving multiMperiod asset allocation probM lems. We assume that investor preferences are defined over moments of the terminal wealth distribution such as its skew and kurtosis. TimeMvariations in investment opportunities ...
SSRN Electronic Journal, 2000
ABSTRACT
SSRN Electronic Journal, 2000
Page 1. Strategic Asset Allocation and Consumption Decisions under Multivariate Regime Switching∗... more Page 1. Strategic Asset Allocation and Consumption Decisions under Multivariate Regime Switching∗ Massimo Guidolin University of Virginia Allan Timmermann University of California San Diego August 9, 2005 Abstract This ...
... (2004) perform an exercise related to ours that using numerical methods applied to a versio... more ... (2004) perform an exercise related to ours that using numerical methods applied to a version of the Lucas (1978) asset ... For a given dividend process, we follow Lucas (1978) and let asset prices be determined in equilibrium by the representative investor's first order conditions. ...
... Dynamics under ayesian Learning Massimo Guidolin Allan Timmermann ... We wish to thank Alexan... more ... Dynamics under ayesian Learning Massimo Guidolin Allan Timmermann ... We wish to thank Alexander David, Jose Campa, Bernard Dumas, Claudio Michelacci, En-rique Sentana and seminar participants at Bocconi University, CEMFI, Federal Reserve Bank of St. ...
SSRN Electronic Journal, 2000
Abstract This paper uses a proprietary dataset to study two key shifts in the structure of the UK... more Abstract This paper uses a proprietary dataset to study two key shifts in the structure of the UK pension fund industry from 1984 to 2004. Specifically, most pension fund sponsors shifted from balanced managers (those managing across all asset classes) to specialist ...
SSRN Electronic Journal, 2000
Despite the significant growth in the European fund industry in recent years, the performance of ... more Despite the significant growth in the European fund industry in recent years, the performance of European equity mutual funds is a largely unexplored area of research. This paper shows that macroeconomic state variables can be used to identify a significant time-varying alpha component among a large sample of Pan-European, European country and sector funds. State variables such as the default yield spread, the term spread, the dividend yield and the short risk-free rate as well as macroeconomic variables tracking consumer price inflation and economic sentiment prove valuable in ex-ante identification of superior performance among funds. Most of the alpha that these state variables help produce comes from their ability to select superior Pan-European funds and generate returns from country selection. * We are grateful to Bernard Delbecque at Lipper for providing the data used in the analysis.
SSRN Electronic Journal, 2000
European financial markets during recent years, the performance of European equity mutual funds o... more European financial markets during recent years, the performance of European equity mutual funds over the past 20 years is largely an unexplored area of research. This paper shows that macroeconomic state variables can be used to identify a significant time-varying alpha component among a large sample of funds with a Pan-European, European country, or European sector focus. Specifically, the default yield spread, term spread, dividend yield, short interest rate and market volatility, as well as macroeconomic variables tracking consumer price inflation and growth in industrial production prove valuable in identifying, ex-ante, funds with superior performance. Most of the alpha that these state variables generate comes from their ability to identify superior Pan-European funds, as well as to generate returns from country selection. * We are grateful to Otto Kober of Lipper for generously providing the mutual fund data used in this study. Also, we thank Bernard Delbecque of the European Fund and Asset Management Association (EFAMA) for providing statistics on the number of funds domiciled in Europe with European investment objectives.
SSRN Electronic Journal, 2000
This paper studies the predictability of European equity mutual fund performance during a period ... more This paper studies the predictability of European equity mutual fund performance during a period when European stock markets were partially segmented. Specifically, we use macroeconomic variables to predict the performance of European equity funds, including Pan-European, country, and sector funds. We find that macro-variables are useful in locating funds with future outperformance, and that country-specific mutual funds provide the best opportunities for fund rotation strategies using macroeconomic information. Specifically, our baseline long-only strategies provide four-factor alphas of 10-12%/year over the 1993-2008 period. Our study provides new evidence on the benefits of local asset managers in segmented markets, as well as how macroeconomic information can be used to locate and exploit these benefits.
Review of Financial Studies, 2007
This paper proposes a new tractable approach to solving asset allocation problems in situations w... more This paper proposes a new tractable approach to solving asset allocation problems in situations with a large number of risky assets which pose problems for standard approaches. Investor preferences are assumed to be defined over moments of the wealth distribution such as its mean, variance, skew and kurtosis. Time-variations in investment opportunities are represented by a flexible regime switching process. In the context of a four-moment international CAPM specification that relates stock returns in five regions to returns on a global market portfolio, we find evidence of distinct bull and bear states. Ignoring regimes, an unhedged US investor's optimal portfolio is strongly diversified internationally. The presence of regimes in the return distribution leads to a large increase in the investor's optimal holdings of US stocks as does the introduction of skew and kurtosis preferences. Our paper therefore offers an explanation of the strong home bias observed in US investors' asset allocation based on regime switching and skew and kurtosis preferences.
Review of Economic Studies, 2005
In situations where a sequence of forecasts is observed, a common strategy is to examine "rationa... more In situations where a sequence of forecasts is observed, a common strategy is to examine "rationality" conditional on a given loss function. We examine this from a different perspectivesupposing that we have a family of loss functions indexed by unknown shape parameters, then given the forecasts can we back out the loss function parameters consistent with the forecasts being rational even when we do not observe the underlying forecasting model? We establish identification of the parameters of a general class of loss functions that nest popular loss functions as special cases and provide estimation methods and asymptotic distributional results for these parameters. This allows us to construct new tests of forecast rationality that allow for asymmetric loss. The methods are applied in an empirical analysis of IMF and OECD forecasts of budget deficits for the G7 countries. We find that allowing for asymmetric loss can significantly change the outcome of empirical tests of forecast rationality.
The Journal of Finance, 2006
The Journal of Finance, 1995
ABSTRACT This article examines the robustness of the evidence on predictability of US stock retur... more ABSTRACT This article examines the robustness of the evidence on predictability of US stock returns, and addresses the issue of whether this predictability could have been historically exploited by investors to earn profits in excess of a buy-and-hold strategy in the market index. We ...
The Journal of Finance, 1999
ABSTRACT In this paper we utilize White's Reality Check bootstrap methodology (White (1999))... more ABSTRACT In this paper we utilize White's Reality Check bootstrap methodology (White (1999)) to evaluate simple technical trading rules while quantifying the data-snooping bias and fully adjusting for its effect in the context of the full universe from which the trading rules ...
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Papers by Allan Timmermann