Is the ‘Perfect’ Timing Strategy Truly Perfect?

Is the ‘Perfect’ Timing Strategy Truly Perfect? In the presence of transaction cost, the ‘perfect’ timing strategy which holds stocks in a period with positive excess return and holds cash in a period with negative excess return is not necessarily perfect. Using the optimal growth criterion, this paper derives the truly perfect timing strategy which can achieve the maximum long term growth. It is found that such a perfect timing strategy can achieve a much higher annual return than the ‘perfect’ timing strategy under reasonable transaction cost. Also, it can achieve a return of over 80% when a review period is as short as a day and when transaction cost is low. Using the truly perfect timing strategy as a benchmark, the likely gains from imperfect timing can be more accurately assessed. For a less frequent review schedule, a market timer needs a very high correct prediction probability in order to be at par with the buy-and-hold strategy. However, the needed correct prediction probability is much less when the review schedule is more frequent. Also, the correct prediction probability needed to be at par with the buy-and-hold strategy increases with the transaction cost. Review of Quantitative Finance and Accounting Springer Journals

Is the ‘Perfect’ Timing Strategy Truly Perfect?

Loading next page...
Kluwer Academic Publishers
Copyright © 2004 by Kluwer Academic Publishers
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
Publisher site
See Article on Publisher Site


You’re reading a free preview. Subscribe to read the entire article.

DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

Monthly Plan

  • Read unlimited articles
  • Personalized recommendations
  • No expiration
  • Print 20 pages per month
  • 20% off on PDF purchases
  • Organize your research
  • Get updates on your journals and topic searches


Start Free Trial

14-day Free Trial

Best Deal — 39% off

Annual Plan

  • All the features of the Professional Plan, but for 39% off!
  • Billed annually
  • No expiration
  • For the normal price of 10 articles elsewhere, you get one full year of unlimited access to articles.



billed annually
Start Free Trial

14-day Free Trial