The goal of performance analysis is the identification of active and passive return components. Active return is further broken down into a timing and a selectivity return component. Statistical techniques are then used to distinguish these systematic performance effects from pure chance and to account for the risks taken to earn them. An information advantage relative to the public is a necessary condition to achieve overperformance. But the possession of such information is only one thing.
Private information includes private selection and private timing information.
Timing Market timing strategies try to predict the direction of the overall market performance. Overperformance by timing the market can be achieved by adjusting the overall market exposure of the portfolio. In theory, there exists a strong incentive for timing activities. So a superior valuation model is needed to compare the true value of a security with the current market value. There is a strong incentive for portfolio manager to use selection strategies.