Timing Ability and Conditional Performance Models

A fund manager who posts high Jensen's alpha may simply have held a high-beta portfolio during a bull market — a strategy with no informational content. Timing ability is the distinct question: does the manager actively raise beta before up-markets and lower it before down-markets? If so, she is extracting information about the future direction of the market above and beyond what is publicly available, which is genuine skill of a different kind from security selection. This note develops the regression tests for timing, the holdings-based alternatives, and the conditional models that strip out return predictability from public information before crediting the manager.