Hopefully I'm not downvoted for disagreeing with an often-stated notion on this sub: "time in the market beats market timing." I know it sounds good and it may be true for the average Joe who wants to spend his free time with his family and let his investments take care of themselves. However, I don't personally believe it to be a truism for someone who is willing to put in the time to understand markets and take a more active approach in their investments.
I decided to look for some research papers that focused on the topic to see if I could find any evidence one way or another and I found nothing to dissuade me from my beliefs, nor did I find anything to make me more confident in my beliefs. I wanted to post here and see if anyone has actually looked into this and found a paper with substance. I'm not talking about a CNBC or Bloomberg article, I'm talking peer-reviewed paper that compares a market timing strategy with a buy and hold and dollar cost average strategy.
If you can find any papers that support one side of the argument or the other, please post them! If you find something but can't access the full paper, let me know. I have access to most papers through my school so I can try to get it for you and we can see what we discover.
I started with a simple Google Scholar search and found these:
-
Market Timing with Moving Averages: Anatomy and Performance of Trading Rules - conclusion is that some commonly used technical indicators to time the market beat market timing in the long term, but were as likely to under-perform as they were to outperform in the medium term.
We also performed the longest out-of-sample testing of a few distinct trading rules in order to find out whether the real-life performance of market timing strategies can support the existing myths and common beliefs about market timing. The results of this testing are as follows. First, contrary to the common belief, our results indicated that there is no single optimal lookback period in each trading rule. Second, we found no support for the common belief that over-weighting the recent prices allows one to improve the performance of a market timing rule. Our results suggested that equal weighing of price changes is the most optimal weighting scheme to use in market timing. Third, we did find support for the claim that one can beat the market by timing it. Yet the chances for beating the market depend on the length of the investment horizon. Whereas over very long-term horizons the market timing strategy is almost sure to outperform the market on a risk-adjusted basis, over more realistic mediumterm horizons the market timing strategy is equally likely to outperform as to underperform. Yet we found that the average outperformance is greater than the average underperformance.
-
Can hedge funds time market liquidity? - to be honest, this one is way over my head. I tried to understand the figures but couldn't make heads or two-tailed T tests of it. I read the conclusion but since I can't understand the figures, I'd really just have to take their word for it, which is what I'm trying to get away from in this case.
-
Active Share and Mutual Fund Performance - conclusion is that managers with a high active share percentage can benefit from market timing to beat their corresponding index after fees, however closet indexers will under-perform due to fees. This conclusion needs to be read in full, but it doesn't really support timing or holding, and just tells us that there are other considerations to make.
Although the average actively managed mutual fund has underperformed its benchmark index, both the type and the degree of active management matter considerably for performance. In my study, I used Active Share and tracking error to sort domestic all-equity mutual funds into five categories on the basis of the type of active management they practice. I found that the most active stock pickers have been able to add value for their investors, beating their benchmark indices by about 1.26% a year after all fees and expenses. Factor bets have destroyed value after fees. Closet indexers have essentially just matched their benchmark index performance before fees, which has produced consistent underperformance after fees. The results are similar over the 2008–09 financial crisis, and they also hold separately within large-cap and small-cap funds. Economically, these results mean that there are some inefficiencies in the market that can be exploited by active stock selection. Furthermore, I found that active stock selection is most successful at times of high cross-sectional dispersion in stock returns. However, equity fund managers are unable to add value by betting on broader factor portfolios, indicating that they are more efficiently priced than individual stocks. For mutual fund investors, these findings suggest that they need to pay attention to measures of active management. When selecting mutual funds, they should go with only the most active stock pickers, or combine those funds with inexpensive index funds; in other words, they should pick from the two extremes of Active Share but not invest in any funds in the middle. In contrast, high tracking error is not desirable because funds that focus on factor bets underperform and even concentrated managers who combine active stock selection with factor bets have not outperformed. Closet indexers who stay very close to the benchmark index are a particularly bad deal because they are almost guaranteed to underperform after fees given the small size of their active bets, yet they account for about one-third of all mutual fund assets.
Anyway, please post any articles you can find whether they support your point of view or mine. I just want some data to back me up or prove me wrong, otherwise we're just all creating an echo chamber with no substance.
Edit: Most comments in this thread are using logic to support the claim. I get it, I'm not saying your logic is wrong, but I was specifically looking for data. There's also a bunch of people that can't handle a differing point of view.
Submitted December 26, 2017 at 11:55PM by mdcd4u2c http://ift.tt/2DikCvw
