Market Timing: Sin a Little
August 9, 2017
Journal of Investment Management
Successful market timing is a tantalizing holy grail for investors, especially when there seems to be persuasive evidence that simple valuation measures have the ability to predict subsequent market performance.
But, as both researchers and investors have discovered, outperforming a passive buy-and-hold approach is harder than it might seem. Is market timing an easy source of added value or a sin to be avoided? In this article we explore the difference between the encouraging in-sample long-horizon evidence and directionally right but weak and disappointing out-of-sample performance. We propose an interpretation that offers a practical enhancement to value timing strategies: adding a dose of momentum.
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This material is not research and should not be treated as research. This paper does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of AQR. The views expressed reflect the current views as of the date hereof and neither the author nor AQR undertakes to advise you of any changes in the views expressed herein.
The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Charts and graphs provided herein are for illustrative purposes only. The information in this presentation has been developed internally and/or obtained from sources believed to be reliable; however, neither AQR nor the author guarantees the accuracy, adequacy or completeness of such information. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. There can be no assurance that an investment strategy will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially, and should not be relied upon as such.
The information in this paper may contain projections or other forward-looking statements regarding future events, targets, forecasts or expectations regarding the strategies described herein, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved, and may be significantly different from that shown here. The information in this document, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.