Advanced Search

Long-term investors and valuation-based asset allocation

Contents:

Author Info

  • Pfau, Wade Donald

Abstract

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/29448/
File Function: orginal version
Download Restriction: no
File URL: http://mpra.ub.uni-muenchen.de/35006/
File Function: revised version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29448.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 09 Mar 2011
Date of revision:
Handle: RePEc:pra:mprapa:29448

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

For corrections or technical questions regarding this item, or to correct its listing, contact: (Ekkehart Schlicht).

Related research

Keywords: market valuations; cyclically-adjusted price-earnings ratio; PE10; stock returns; market timing; long term; tactical asset allocation; buy and hold;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jonathan Ingersoll & Ivo Welch, 2007. "Portfolio Performance Manipulation and Manipulation-proof Performance Measures," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 20(5), pages 1503-1546, <.
  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.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Retirement Planning, December 2011
    by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-12-02 05:54:00
  2. Role of Valuations for Long-Term Investors
    by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-09-29 04:33:00
  3. Long-Term Conservative Investors and Valuation-Based Asset Allocation Strategies
    by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-03-17 03:25:00
  4. Could Valuation-Based Asset Allocation Strategies Have Worked in Japan?
    by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-03-17 02:34:00

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:29448

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.