I have finally (I think) finished updating my 2006 white paper. While the Journal of Wealth Management published the 11-page paper in 2007, this 50-page update includes out-of-sample data from 2006-2008 as well as numerous other additions. There were other sections I wanted to include, but I will probably just move those to the FAQs above. Please, let me know what you think and email in any errors, omissions, and mistakes.
Out of sample returns have beaten the buy about hold benchmark by about 50% since the beginning of 2006.
"A Quantitative Approach to Tactical Asset Allocation" 2009 Update.
Currently the model is 80% cash, 20% bonds.
Abstract:
The purpose of this paper is to present a simple quantitative method that improves the risk-adjusted returns across various asset classes. A simple moving average timing model is tested since 1900 on the United States equity market before testing since 1973 on other diverse and publicly traded asset class indices, including the Morgan Stanley Capital International EAFE Index (MSCI EAFE), Goldman Sachs Commodity Index (GSCI), National Association of Real Estate Investment Trusts Index (NAREIT), and United States government 10-year Treasury bonds. The approach is then examined in a tactical asset allocation framework where the empirical results are equity-like returns with bond-like volatility and drawdown, together with over thirty-five consecutive years of positive performance.
How do we translate the study results into actionable transactions for 401ks that are down 40-50%?
On Exhibit 5, the graph on page 10 of the revised paper:
How could timing's maximum drawdown be only -4.84%, while its worst year was -26.87%?
That makes no sense.
Looks like a typo in the maximum drawdown.
correct maxDD is -50.34% thanks for the note.
Stockcharts, Big Charts, and other providers of free charts do not offer monthly options. Instead of using monthly data, would results be similar if based on weekly closings with 40 weeks SMA?
Mebane,
I posted a tongue in cheek 'comparison' of your system with one developed by Jim (Mungofitch) over on the MI board at the Fool.
You may be interested (or appalled).
Steve
http://boards.fool.com/Message.asp?mid=27456332...
Meb–
Is the paper available? I seem to only find the abstract and the purchase link is dead.
never mind. I found the download. sorry..
stockcharts has monthly data, but i think it is for a fee.
Yeah I think they should make it a little simpler to download. . .
Thanks so much for all of your work. Your paper has been extremely helpful to me. I found a few errors/typos on the update:
Exhibit 5: The returns for the timing model are different table than referenced in the text. 9.14% vs 10.45%
Timing max drawdown listed as 4.84%
Exhibit 11: Timing model ann. returns are lower in table but chart shows timing outperforming
Read the paper with great interest. Just wondering a few things:
- Does the results of timing model improve with a long/short strategy on sharpe/MDD across all asset classes?
- The success rate of timing model on GSCI is low for long. Does it make it a better model for short on GSCI?
- Investment horizon constraints. How will affect results for say, 5 yrs, 10 yrs, 15 yrs and 20 yrs horizon? as real investors will have some timing constraints.
- Did some quick regression on the timing model on S&P 500 against Carhart's 4 factors model. The result is implied a momentum based strategy though the adjusted R2 is low. Any take on that?
Where to you find the download for the full article; the abstract seems the only available item at the SSN site..
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Just came across this (it was mentioned in an article in the FPA Journal). When applying this to a multi-asset portfolio (e.g. 5 assets @ 20% each), is the portfolio rebalanced monthly, annually, other?
Seen this?
Stefano Marmi, Claudio Pacati, Wiston Adrin Risso, and Roberto Ren. A
Quantitative Approach to Faber’s Tactical Asset Allocation. SSRN eLibrary,
2009.
What do you think it?
Worik
Seen this?
Stefano Marmi, Claudio Pacati, Wiston Adrin Risso, and Roberto Ren. A
Quantitative Approach to Faber’s Tactical Asset Allocation. SSRN eLibrary,
2009.
What do you think it?
Worik