A markets-based profile of US economic conditions suggests that business cycle risk remains low. The Macro-Markets Risk Index (MMRI) closed yesterday (April 22) at 13.7%–well above the danger zone of 0% and within the 10%-to-15% range that’s prevailed so far in 2013. When MMRI falls under 0%, recession risk is elevated; readings above 0% equate with economic growth.
Daily Archives: April 23, 2013
Research Review | 4.23.13 | Asset Allocation Strategy
Fooled by Data-Mining: The Real-Life Performance of Market Timing with Moving Averages
Valeriy Zakamulin (University of Agder) | April 2013
In this paper we advocate that the reported performance of the simple moving average market timing strategy proposed by M. Faber (“A Quantitative Approach to Tactical Asset Allocation” (2007) published in the Journal of Wealth Management) is contaminated by data-mining. In order to deal with the data-mining bias, we perform an out-of-sample simulation of the simple moving average timing model over the period 1930 to 2012. We then examine the real-life performance of the market timing strategy and assess the extent of the data-mining bias. Finally we revisit the myths about the superior performance of the market timing strategy and provide an unbiased estimate of its future performance.