Pfau, Wade Donald (2011): Long-term investors and valuation-based asset allocation.
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Valuation-based market timing demonstrates strong potential to improve risk-adjusted returns for conservative long-term investors. Such timing strategies based on the cyclically-adjusted price-earnings ratio 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, it is important to consider less extreme timing strategies as well, as defining market timing as either all stocks or all cash does not provide a hedge against the possibility that valuations may depart from their historical averages for extended periods. Finally, comparing the strategies over shorter rolling sub-periods reveals that a valuation-based market timing approach fairly consistently provides risk-adjusted returns superior to a fixed asset allocation strategy.
|Item Type:||MPRA Paper|
|Original Title:||Long-term investors and valuation-based asset allocation|
|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 ; Insider Trading
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 and Methodology: General > C15 - Statistical Simulation Methods: General
N - Economic History > N2 - Financial Markets and Institutions > N21 - U.S. ; Canada: Pre-1913
D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance
|Depositing User:||Wade D. Pfau|
|Date Deposited:||25. Nov 2011 15:27|
|Last Modified:||12. Feb 2013 03:40|
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Available Versions of this Item
Revisiting the Fisher and Statman Study on Market Timing. (deposited 09. Mar 2011 06:31)
- Long-term investors and valuation-based asset allocation. (deposited 25. Nov 2011 15:27) [Currently Displayed]