Three-Factor Market-Timing Models with Fama and French's Spread Variables

Abstract

The traditional performance measurement literature has attempted to distinguish security selection, or stock-picking ability, from market-timing, or the ability to predict overall market returns. However, the literature finds that it is not easy to separate ability into such dichotomous categories. Some researchers have developed models that allow the decomposition of manager performance into market-timing and selectivity skills. The main goal of this paper is to present modified versions of classical market-timing models with Fama and French’s spread variables SMB and HML, in the case of Polish equity mutual funds. (original abstract)