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Market Timing In Regressions And Reality

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  • Kenneth L. Fisher
  • Meir Statman

Abstract

We compare price-to-earnings ratios and dividend yields, which are indirect measures of sentiment, with the bullish sentiment index, which is a direct measure. We find that the sentiment index does better as a market-timing tool than do P/E ratios and dividend yields, but none is very reliable. We do not argue that market timing is impossible. Rather, we observe that stock prices reflect both sentiment and value, both of which are difficult to measure and neither of which is perfectly known in foresight. Successful market timing requires insights into future sentiment and value, insights beyond those that are reflected in widely available measures. 2006 The Southern Finance Association and the Southwestern Finance Association.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:jfnres:v:29:y:2006:i:3:p:293-304
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    Citations

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    Cited by:

    1. Pfau, Wade Donald, 2011. "Revisiting the Fisher and Statman Study on Market Timing," MPRA Paper 29448, University Library of Munich, Germany.
    2. Lutz, Chandler, 2015. "The impact of conventional and unconventional monetary policy on investor sentiment," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 89-105.
    3. Mohamed Zouaoui & Geneviève Nouyrigat & Francisca Beer, 2011. "How does investor sentiment affect stock market crises?Evidence from panel data," Working Papers CREGO 1110304, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    4. Kurov, Alexander, 2010. "Investor sentiment and the stock market's reaction to monetary policy," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 139-149, January.
    5. Pfau, Wade Donald, 2011. "Withdrawal Rates, Savings Rates, and Valuation-Based Asset Allocation," MPRA Paper 35329, University Library of Munich, Germany.
    6. M. Zouaoui & G. Nouyrigat & F. Beer, 2010. "How does investor sentiment affect stock market crises? Evidence from panel data," Post-Print halshs-00534754, HAL.
    7. Chung Baek, 2016. "Stock prices, dividends, earnings, and investor sentiment," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 1043-1061, November.
    8. Gunter Löffler, 2013. "Tower Building And Stock Market Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(3), pages 413-434, September.
    9. Blake LeBaron, 2010. "Heterogeneous Gain Learning and Long Swings in Asset Prices," Working Papers 10, Brandeis University, Department of Economics and International Businesss School.

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