Drawbacks of Simple Momentum

As a number of readers have pointed out, there are various drawbacks to the method/test I have presented here. The big ones are:1. Fixed measurement period. I used a simple one-month and one-year absolute measure, but it is possible that 3, 6, X months would work better (or a combination of measurement periods).2. Fixed holding period. This is the...

Does 1MO Work on Foreign Indices?

I take a look at the top 5 countries in the MSCI EAFE Index - UK, Japan, France, Switzerland, Germany, and Cash.Much better return with similar volatility (resulting in a higher Sharpe), and lower drawdown.No allowances made for commissions, slippage, taxes, etc.Equity Curves, log and non-log. . .

Volatility Gremlins

Readers have been emailing me about the returns of the models I have presented in the last few posts. Rather than respond to all of them individually, I thought I would just post the year by year returns for the S&P500, the 1-Year MO model, the 1-Month MO model, and a combo of the two models. Recall that no...

More Momentum

What about a strategy that is a bit more active? In this follow up to "Simple Cross-Market Momentum", I take a look at a shorter time-frame - 1 month momentum. The strategy selects the market for the following month with the highest absolute return the previous month. As in the previous study, the strategy is examined since 1972 utilizing...

Great Website

Fundadvice.com has a plethora of articles on buy-and-hold investing, as well as market timing.A couple of my favorites:Buy and Hold ArticlesThe Ultimate Buy and Hold PortfolioThe Perfect PortfolioMarket Timing ArticlesAll About Market TimingMarket Timing: The Rest of the StoryDo You Have What it Takes to be a Successful Market Timer?Lots more info on there for retirement, etc. . .

Simple Cross-Market Momentum

Below I will present a simple quantitative method that exploits momentum in relative returns across a wide set of asset classes. The strategy is examined since 1972 in an allocation framework utilizing a combination of diverse and publicly traded asset class indices including US Stocks (S&P 500), Foreign Stocks (MSCI EAFE), Commodities (GSCI), REITs (NAREIT), Cash (90-Day Commercial Paper),...

Goldman Primer

In the Goldman Sachs GTAA primer linked below, they describe some empirical evidence of GTAA using valuation and momentum factors. They form equal weighted portfolios withing each asset class (equities, fixed income, and currencies) based on 1 - Valuation based on Price to Book (P/B) for equities, yield curve for fixed income, and purchasing power parity for currencies, and...

Historical Evidence

Essentially, GTAA is market timing. Historical evidence has provided a mixed bag of evidence of the ability of market timers. One of the best literature reviews of the subject is "Evaluating a stock market timing strategy: the case of RTE Asset Managment" by Tezel and McManus .

Global Tactical Asset Allocation

The focus on the blog thus far has been a passive buy and hold approach to investing - esentially, how you divy up your pie into slices of world asset classes. However, an active approach to asset allocation may offer some value. Tactical Asset Allocation is defined by Investopedia as an"active management portfolio strategy that rebalances the percentage of...

Speaking of Crahses

The Nasdaq Composite since 1972 has had two declines over - 50% (- 58% from 1972-1974, - 75% from 2000-2002). The chart doesn't look so bad because it is logarithmic. . .What about the other major asset classes? Below is a table of 5 major asset classes: US Equities, Foreign Equities, US Government Bonds, REITs, and Commodities. Since...