Beschreibung:
<jats:title>Abstract</jats:title><jats:p>Theory predicts that market‐timing activities bias Jensen's alpha (<jats:styled-content style="fixed-case">JA</jats:styled-content>). However, empirical studies have failed to find consistent evidence of this bias. We tackle this puzzle in a nested model analysis and show that the bias contains an exogenous market component that is unrelated to market‐timing skill. In a comprehensive empirical analysis of <jats:styled-content style="fixed-case">US</jats:styled-content> mutual funds, we find that the timing‐induced bias in <jats:styled-content style="fixed-case">JA</jats:styled-content> is mainly driven by this market component, which is uncorrelated with measured timing activities. Measures of total performance that allow for timing activities are virtually identical to <jats:styled-content style="fixed-case">JA</jats:styled-content>, even if timing activities are present in the evaluated fund. Hence, we conclude that <jats:styled-content style="fixed-case">JA</jats:styled-content> is a sufficient measure of total performance.</jats:p>