Jensen’s Alpha and Market-Timing Skill

Summary

The document raises a question about whether Jensen’s alpha remains an appropriate performance measure when a fund manager can time the market perfectly. It points to timing models associated with Treynor and Mazuy and Henriksson and Merton, but provides no answer, derivation, data, or discussion of those models’ assumptions.

As a result, the text serves mainly as a prompt for examining how market timing affects performance attribution. A useful analysis would need to distinguish a manager’s exposure to market movements from their ability to adjust that exposure over time, and consider whether a measure designed around a fixed beta captures that behavior. The document itself does not establish whether Jensen’s alpha is unsuitable, nor does it compare alternative measures. Its value is in identifying a focused measurement question rather than presenting a method or evidence that resolves it.

Key ideas

• The document asks whether Jensen’s alpha can assess a manager who times market exposure.
• It cites the Treynor–Mazuy and Henriksson–Merton timing models as context.
• No answer, empirical evidence, or alternative performance measure is supplied.
• Resolving the question requires considering how changing market exposure affects performance attribution.

Tags

# Jensen's alpha with timing activities


# Jensen's alpha with timing activities












Why is Jensen’s Alpha not an appropriate measure of performance anymore, if the fund manager is a perfect market timer as stated for example in the Treynor-Mazuy-model or the Henriksson-Merton-model?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.