New test statistics for market timing with applications to emerging markets hedge funds

A new framework is provided for identifying market timing. The analysis focuses on the local joint history of the hedge fund with the benchmark. The approach is fully nonparametric. Therefore, it has the advantage of avoiding the misspecification problems so common in this literature. The test statistic is some rank preserving function of a second-order U-process. This empirical process allows one to define a set of statistics for market timing. The relevant asymptotic distribution is detailed. Some of these statistics are used to study the timing component of emerging markets funds using the 1999 dataset of Hwang and Satchell.