Original Research

The effects of bull and bear periods on market timing strategies

M. Dumont De Chassart, C. Firer
South African Journal of Business Management | Vol 32, No 3 | a720 | DOI: https://doi.org/10.4102/sajbm.v32i3.720 | © 2018 M. Dumont De Chassart, C. Firer | This work is licensed under CC Attribution 4.0
Submitted: 12 October 2018 | Published: 30 September 2001

About the author(s)

M. Dumont De Chassart, School of Management Studies, University of Cape Town, South Africa
C. Firer, Graduate School of Business, University of Cape Town, South Africa

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Abstract

This study evaluates the performance of traditional timing, bull timing (holding the risk-free asset and buying call options to take advantage of expected market rises) and bear timing (holding the market index and buying put options ahead of expected market falls) strategies on the Johannesburg Stock Exchange during bullish and bearish market phases. Potential returns as well as the forecasting ability required to outperform the ALSI are calculated.
When the market is in a bullish phase, bear timing is the better strategy. However, in such a market, very high predictive accuracy (above 85 percent) is required from both bull and bear timers. In a bearish phase, however, bull timers perform better than bear timers. The predictive ability required of bear timers is of the order of 65 percent. For bull timers this required predictive accuracy drops below 50 percent, making it an extremely attractive strategy, provided the bear phases of the market can be predicted.

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