This study argues that there may exist benefits in active portfolio management and trading other than the possibility of obtaining excess returns. The objective is not to attack the hypothesis that trading cannot produce (risk-adjusted) returns that are superior to passive investment strategies. What is suggested is that the combination of active and passive strategies can help considerably in diversifying investment positions. An empirical application using large samples of daily data on the Dow Jones Industrial Average (DJIA) and the Financial Times Institute of Actuaries 30 (FT30) indexes shows that simple market timing techniques, such as those used by Brock et al. (Journal of Finance, 47, 1731-64, 1992), Mills (International Journal of Finance and Economics, 2, 319-31, 1997) and Markellos (Applied Economics Letters, 6, 177-79, 1999), can be combined with buy-and-hold strategies to match the market return at a fraction of market risk. In accordance with the studies by Mills and Markellos, it is found that the behaviour of the data appears to have changed in recent years.
