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The Journal of Wealth Management

The Journal of Wealth Management

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Primary Article

Market Timing and the Business Cycle

Matt Cooper and Natalie Chieffe
The Journal of Wealth Management Fall 2004, 7 (2) 81-86; DOI: https://doi.org/10.3905/jwm.2004.434569
Matt Cooper
The assistant controller at Avery Dennison in Luxembourg.
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Natalie Chieffe
An associate professor of finance at Ohio University in Athens, OH. chieffe@ohio.edu
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Abstract

In the pursuit of superior portfolio returns, some portfolio managers have turned to market timing for the extra edge. There is, however, no consistent strategy that earns returns above the benchmark. For an asset class to provide higher return requires a shift in the economy such as from an expansion to a contraction. Since valid economic data is not available until long after the period under consideration, the National Bureau of Economic Research often dates the turning points of an economic cycle months after the event. The results of this study show that the portfolio manager must be able to recognize the transition from expansion to contraction within one month of the turning point and act accordingly. To attempt to identify the shift the authors establish a set of rules with respect to economic data and test them on a hypothetical portfolio. The result is an annual return less than that of the S&P 500 over the same period. How can an investor recognize the peak or trough so soon? Certainly not by using any data that is readily available. The idea that excess returns can be earned by market timing is obviously a fascinating one, but thus far, there has been no accurate method to consistently realize these returns.

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The Journal of Wealth Management
Vol. 7, Issue 2
Fall 2004
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Market Timing and the Business Cycle
Matt Cooper, Natalie Chieffe
The Journal of Wealth Management Jul 2004, 7 (2) 81-86; DOI: 10.3905/jwm.2004.434569

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Market Timing and the Business Cycle
Matt Cooper, Natalie Chieffe
The Journal of Wealth Management Jul 2004, 7 (2) 81-86; DOI: 10.3905/jwm.2004.434569
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More in this TOC Section

  • Measuring the Cost of Risk Reduction in Tax-Deferred Investing
  • Investment Implications of the Estate Tax
  • Wealth Management
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