Question

A mutual fund timing the market...

		...will employ a large amount of leverage.
		...will have a low Treynor ratio.
		...will increase portfolio beta when the market is expected to do well.
		... will have a linear SCL

Answer 1

A mutual fund timing the market will increase portfolio beta when the market is expected to do well. This is because if the beta is increased, the return on the portfolio will be higher than the market return. Beta is the sensitivity of a security or portfolio's return to the market return. Higher the beta, higher the security or portfolio's return relative to the market return

Leverage is irrelevant here as the fund depends on market timing and not leverage to deliver excess returns

Treynor ratio is a measure of the portfolio or security's return, adjusted for systematic risk (beta). A mutual fund timing the market may or may not end up having a low Treynor ratio, depending on its accuracy of timing the market. If the fund times the market correctly, it will have a higher Treynor ratio, and if it does not time the market correctly, it will have a lower Treynor ratio

The security characteristic line (SCL) is a line that plots the return of a security or portfolio against the return of the market portfolio. The slope of the SCL is the beta of the security or portfolio. SCL will be linear, irrespective of whether the fund times the market or not