Timing the Market Successfully

Friday, September 1st, 2023   Categories: Bear Markets, Harlyn's Process, Market Timing, Turning Points, United States

Modelling the behaviour of risk-seeking investors

For some time, we have been interested in the behaviour of risk-seeking investors, which we model using a variant of our standard approach, called a pro-risk momentum model. We find that it can be used to time switches between cash and US equities, so that our model outperforms US equities on a standalone basis over the last 50 years. This is a result which most academic research regards as unachievable. In absolute terms, the quantum of outperformance is not material, but the risk-adjusted returns are clearly superior and the drawdowns are significantly smaller and shorter. We find that the same approach also works when combining US 10-year Treasuries with cash and a broad commodity index with cash.