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Market timing for the individual investor: Using the predictability of long-horizon stock returns to enhance portfolio performance |
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| Institution: | 1. Nanyang Business School, Nanyang Technological University, Division of Banking and Finance, Singapore 639798, Singapore;2. Business School, University of Adelaide, 10 Pulteney Street, Adelaide 5005, Australia;3. Korea University Business School, Korea University, 145 Anam-ro, Seongbuk-gu, Seoul, Republic of Korea;1. School of Business, University of Connecticut, 2100 Hillside Road, Unit 1041, Storrs, CT 06269, United States;2. Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, DC 20551, United States |
| Abstract: | Recent research indicates that dividend yield and earnings-price ratio can partially predict long-horizon stock returns. We examine whether individual investors can successfully construct timing portfolios based on either of these variables or a measure of the expected market risk premium. The out-of-sample tests in this study require that investors rely only on information that was available at the time of the market-timing decision. Timing portfolios based on the market risk premium show the strongest ability to time the market. We present an economic rationale for the results that is consistent with efficient markets. |
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