IDEAS home Printed from https://ideas.repec.org/a/taf/apfiec/v22y2012i16p1343-1353.html
   My bibliography  Save this article

Long-term investors and valuation-based asset allocation

Author

Listed:
  • Wade D. Pfau

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% 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.

Suggested Citation

  • Wade D. Pfau, 2012. "Long-term investors and valuation-based asset allocation," Applied Financial Economics, Taylor & Francis Journals, vol. 22(16), pages 1343-1353, August.
  • Handle: RePEc:taf:apfiec:v:22:y:2012:i:16:p:1343-1353
    DOI: 10.1080/09603107.2011.648317
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/09603107.2011.648317
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:22:y:2012:i:16:p:1343-1353. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/RAFE20 .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.