Tactical Asset Allocation: Are Uber-Simple Systems Robust?
Simple and Effective Market Timing with Tactical Asset Allocation Lewis A. Glenn A version of the paper can be found here. Want a summary of [...]
Flexible Asset Allocation: Dethroning Moving Average Rules?
Strategy Summary The flexible asset allocation strategy was first proposed by Keller and Putten (2012), in their paper "Generalized Momentum and Flexible Asset Allocation (FAA): An [...]
Valuation Spreads Over Time: A Unique Market Timing Signal?
The blogosphere is spammed with commentary related to the current high market valuations and the inevitable crash that "must" ensue. We've even been involved in [...]
How many stocks should you own? The costs and benefits of Diversification
In this post we explore the trade-off between diversification and alpha generation. Here is a high level summary of the situation: Owning more stocks in a portfolio lowers "idiosyncratic" risk, or risk that can be eliminated through diversification...however...Owning more stocks dilutes performance of an "alpha" generating process. (e.g., forcing Warren Buffett to hold a 500 stock equal-weighted portfolio would dampen his alpha). In summary, fewer stocks in a portfolio imply more expected alpha and more idiosyncratic risk; more stocks in a portfolio imply less expected alpha and less idiosyncratic risk. But what is the optimal trade-off between alpha and idiosyncratic risk? Do we want to own a 1 stock portfolio? A 50 stock portfolio? A 1000 stock portfolio?
A Surprising Way to time Value and Momentum: Updated Analysis
Exploiting Factor Autocorrelation to Improve Risk Adjusted Returns K Oversby A version of the paper can be found here. Want a summary of academic papers with [...]
Tactical Asset Allocation During Cheap Markets
In our last post, we looked at tactical allocation using valuation metrics and trend-following measures. Our conclusion from the analysis is that discerning robust trading [...]
Old School Academics on Moving Average Rules: Remarkable.
Simple Technical Trading Rules and the Stochastic Properties of Stock Returns Brock, Lakonishok, and LeBaron A version of the paper can be found here. Want a [...]
Using Utilities to Time the Market
Strategy Background Beta Rotation strategy (BRS) is discussed by Charles Bilello and Michael Gayed in their new paper, “An International Approach to Beta Rotation: The [...]
A Simulation Study on Simple Moving Average Rules
The mention of technical analysis in the halls of academia can cause serious angst. The disdain for technical analysis likely stems from a firm belief that [...]
Timing the Market with Mean Reversion Indicators
Mean Reversion, Momentum and Return Predictability Huang, Jiang, Tu, Zhou A version of the paper can be found here. Want a summary of academic papers with [...]
How to Build Expected Return Forecasting Models
Investors are enamored with various investment houses and personalities who claim insight into the prospects for long-term expected market returns. Some classic examples include Nouriel Roubini, John Hussman, David Rosenberg, or Jeremy Grantham. All really smart people. But have you ever asked "How" these folks came to their conclusions? In most cases, the answer is probably "No" and the reason is because there is a lack of transparency from the author(s) and/or a lack of knowledge/understanding on behalf of the reader. We also want to highlight that one can develop incredibly complex return forecasting models -- super sexy, super interesting, super compelling, etc. -- but that still doesn't mean they are any good at forecasting much of anything.
Can Market Valuations Be Effective Market-Timing Signals?
We know that valuation metrics such as the CAPE, or Shiller P/E, ratio are correlated with long-term returns (notice we didn't say "predict" long-term returns--that is [...]
Risk Parity Across Time? A Simulation Education…
Inter-Temporal Risk Parity: A Constant Volatility Framework for Equities and Other Asset Classes R Perchet, R Carvalho T Heckel and P Moulin A version of [...]
Is Smart Beta Bullsh!+?
John Bogle did a tremendous service to humanity when he launched the first index fund in 1975. By providing people with a passive, low-cost way [...]
Buffett versus Asness on Bonds: Terrible Investment or Good Diversifier?
Financial news TV shows are a great place to wage philosophical battles, particularly with respect to investing, which tends to gets people’s juices flowing. Warren [...]
The Psychology of Scarcity: Part 2 of 2 (Bonus! Scarcity in Asset Allocation)
How can one optimize performance and decision-making when one is affected by scarcity? This is the subject of Part 2 of our 2-part scarcity series. [...]
Flexible Asset Allocation Assessment
We mentioned an interesting piece by Keller and Putten (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2193735) . Here was our original take: https://alphaarchitect.com/2013/01/03/flexible-asset-allocation/ The strategy seemed worth a second look so my [...]
Moving Average Triggers on Emerging, REITs, and 10-Years.
Do-It-Yourself tactical asset allocation weights for September are posted. Create a free account here if you want to access the site directly. Exposure Highlights: Similar to last month: [...]
Should we all hire dart-throwing monkeys or investment managers peddling tactical asset allocation models?
Looks like dart-throwing monkeys are a viable alternative... Boot out the 2008 Financial Crisis (a sample of n=1) and you have pretty "blah" returns... Are [...]
Happy days for Momentum; Sad days for Risk Parity
Do-It-Yourself tactical asset allocation weights for August are posted. Create a free account here if you want to access the site directly. Exposure Highlights: No Commodities; no bonds; [...]