The work of Treynor and Mazuy (1966) spawned an extensive literature on returns-based measurement of portfolio performance which distinguishes between a manager's ability to act on information specific to an individual asset (asset selection) and ability to forecast systematic risk premiums and adjust portfolio exposures accordingly (market, or factor, timing). In a world in which dynamic trading strategies and asset payoffs that are non-linear in factor returns, obtaining a clear separation between asset selection and market timing is difficult. Additionally, predictability of risk premiums causes a confounding of timing based on public information versus true skill. However, disaggregating the measurement of the components allows us to obtain more accurate measures of the quantity of interest, total portfolio performance.
Korajczyk, Robert and Ravi Jagannathan. 2017. "Market Timing." In Portfolio Construction, Measurement, and Efficiency: Essays in Honor of Jack Treynor, edited by John Guerard, Jr., 49-71. Switzerland: Springer International Publishing.