| Author: | Bauer, R. J. Jr. Dahlquist, J. R. |
| Title: | Market Timing and Roulette Wheels |
| Journal: | Financial Analysts' Journal
2001 : JAN-FEB, VOL. 57:1, p. 28-40 |
| Index terms: | INVESTORS STOCKS FINANCE |
| Language: | eng |
| Abstract: | Nobel laureate William F. Sharpe and others have alerted investors to the potential pitfalls of market timing. The authors also conclude from the study reported here that market timing is generally a difficult game. But the difficulty varies substantially over time-which has some intriguing implications for performance evaluation. Using a new measure of investment performance that the authors call the "roulette wheel" measure, the authors analyzed monthly, quarterly, and annual market-timing strategies in the 1926-99 period for six major U.S. asset classes. In the 1995-99 period, buying and holding large-capitalization stocks would have outperformed about 99.8 percent of the more than 1 million possible quarterly switching sequences between large-cap stocks and U.S. T-bills. |
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