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Revisiting the Fisher and Statman Study on Market Timing

Author

Listed:
  • Pfau, Wade Donald
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.

Suggested Citation

  • Pfau, Wade Donald, 2011. "Revisiting the Fisher and Statman Study on Market Timing," MPRA Paper 29448, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:29448
    as

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    File URL: https://mpra.ub.uni-muenchen.de/29448/1/MPRA_paper_29448.pdf
    File Function: original version
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    File URL: https://mpra.ub.uni-muenchen.de/35006/2/MPRA_paper_35006.pdf
    File Function: revised version
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    References listed on IDEAS

    as
    1. Jonathan Ingersoll & Ivo Welch, 2007. "Portfolio Performance Manipulation and Manipulation-proof Performance Measures," The Review of Financial Studies, Society for Financial Studies, vol. 20(5), pages 1503-1546, 2007 17.
    2. Wade D. Pfau, 2009. "Lifecycle Funds and Wealth Accumulation for Retirement:Evidence for a More Conservative Asset Allocation as Retirement Approaches," GRIPS Discussion Papers 09-15, National Graduate Institute for Policy Studies.
    3. Kenneth L. Fisher & Meir Statman, 2006. "Market Timing In Regressions And Reality," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(3), pages 293-304, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    market valuations; cyclically-adjusted price-earnings ratio; PE10; stock returns; market timing; long term; tactical asset allocation; buy and hold;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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