Revisiting the Fisher and Statman Study on Market Timing

Pfau, Wade Donald (2011): Revisiting the Fisher and Statman Study on Market Timing. Unpublished.

Abstract

Valuation-based market timing demonstrates greater potential to improve risk-adjusted returns for conservative long-term investors than given credit by Fisher and Statman (2006). On a risk-adjusted basis, market-timing strategies provide comparable returns as a 100 percent stocks buy-and-hold strategy but with substantially less risk. Meanwhile, market timing provides comparable risks and the same average asset allocation as a 50/50 fixed allocation strategy, but with much higher returns. Also, defining market timing as either 100 percent stocks or 100 percent Treasury bills does not provide a hedge against the possibility that valuations may depart from their historical averages for extended periods.

• Item Type: MPRA Paper
• Language: English
• Keywords: market valuations; cyclically-adjusted price-earnings ratio; PE10; stock returns; market timing; long term; tactical asset allocation; buy and hold
• Subjects: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions; N - Economic History > N2 - Financial Markets and Institutions > N22 - U.S.; Canada: 1913-; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C15 - Statistical Simulation Methods; Monte Carlo Methods; Bootstrap Methods; N - Economic History > N2 - Financial Markets and Institutions > N21 - U.S.; Canada: Pre-1913; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Personal Finance

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