AN ARGUMENT AGAINST STOCK-PICKING AND MARKET-TIMING: AN EMPIRICAL APPROACH
DOI:
https://doi.org/10.23881/idupbo.020.2-6ePalabras clave:
Market -Timing, Market Efficiency Hypothesis, Portfolio Management, Investment.Resumen
This paper’s objective is to demystify the world of investing, first by showing and exposing the results the greatest money managers in the Wall Street have obtained over the last years compared to the performance of their benchmark indexes. Index investing represents a passive investment strategy of holding hundreds of stocks instead of the active management approach used by these experts. After exposing said results, a theoretical framework will be presented that explains why money managers have such a difficult time outperforming their benchmark indexes. Later on, a back-test experiment will be presented and thoroughly explained showing five different hypothetical investment scenarios over several 20-year periods with the attempt to quantify the potential benefit of perfectly timing the market and compare it to the cost of waiting for a better time to invest. The results find shows that the cost of waiting is much greater that the potential benefit of perfectly timing the market and the best alternative would be to invest available cash immediately regardless of market or economic outlook.Descargas
Referencias
B. G. Malkiel, A Random Walk Down Wall Street, W. W. Norton & Company, 2019.
L. Carlozo, "Why Investors Love the S&P 500," U.S. News & World Report, 2018.
S&P Dow Jones Indices LLC, "SPIVA U.S. Scorecard," 2018.
S&P Dow Jones Indices LLC, "Persistence Score Card," 2014.
A. Ang and W. N. Goetzmann, "The Efficient Market Theory and Evidence: Implications for Active Investment Management," Foundations and Trends in Finance, vol. 5, no. 3, pp. 147-242, 2010.
T. T. Chitenderu, A. Maredza and K. Sibanda, "The Random Walk Theory And Stock Prices: Evidence From Johannesburg Stock Exchange," International Business & Economics Research Journal, vol. 13, no. 6, pp. 1241-1249, 2014.
R. A. Brealey, F. Allen and S. Myers, Principles of Corporate Finance, New York: McGraw-Hill, 2016.
K. Cuthbertson and D. Nitzsche, Financial Engineering: Derivatives and Risk Management, Wiley, 2001.
S. F. LeRoy, "Efficient Capital Markets and Martingales," Journal of Economic Literature,, vol. 27, no. 4, pp. 1583-1621, 1989.
S. Dupernex, "Why Might Share Prices Follow a Random Walk?," Student Economic Review,, vol. 21, pp. 167-179, 2007.
N.-M. Jula and . N. Jula, "Random Walk Hypothesis in Financial Markets," Challenges of the Knowledge Society, vol. 7, p. 878 – 884, 2017.
A. Degutis and L. Novickytė, "The Efficient Market Hypothesis: A Critical Review of Literature and Methodology," Ekonomika, vol. 93, no. 2, pp. 7-23, 2014.
E. F. Fama, "Efficient Capital Markets: A Review of Theory and Empirical Work," The Journal of Finance, vol. 25, no. 2, pp. 383-417, 2010.
E. F. Fama, L. Fisher, M. C. Jensen and R. Roll, "The Adjustment Of Stock Prices To New Information," The International Economic Review, vol. 10, no. 1, pp. 1-21, 1969.
E. F. Fama, "Market Efficiency, Long-Term Returns, and Behavioural Finance," Journal of Financial Economics, vol. 49, no. 3, pp. 283-306, 1998.
J. Martínez Barbeito, "La Hipótesis de los Mercados Eficientes, El Modelo del Juego Justo y el Recorrido Aleatorio," Rect@, vol. Actas 14, 2006.
M. Sewell, "The Efficient Market Hypothesis: Empirical Evidence," International Journal of Statistics and Probability, vol. 1, no. 2, 2012.
R. J. Sweeney, "Some New Filter Rule Tests: Methods and Results," The Journal of Financial and Quantitative Analysis, vol. 23, no. 3, pp. 285-300, 1988.
W. A. Brock, J. Lakonishok and B. Lebaron, "Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, vol. 47, no. 5, pp. 1731-1764, 1992.
L. P. Rafael, J. Lakonishok, A. Shleifer and R. Vishny, "Good News for Value Stocks: Further Evidence on Market Efficiency," The Journal of Finance, vol. 52, no. 2, pp. 859-874, 1997.
A. G. Titan, "The Efficient Market Hypothesis: Review of Specialized Literature and Empirical Research," Procedia Economics and Finance, vol. 32, p. 442 – 449, 2015.
T. Delcey, "Samuelson vs Fama on the Efficient Market Hypothesis: The Point of View of Expertise," Œconomia, vol. 9, no. 1, pp. 37-58, 2019.
J. B. Duarte-Duarte, J. M. Mascareñas Pérez-Iñigo and K. J. Sierra-Suárez, "Testing The Efficiency Market Hypothesis for the Colombian Stock Market," DYNA, vol. 81, no. 185, pp. 100-106, 2014.
H. R. Oppenheimer and G. G. Schlarbaum, "Investing with Ben Graham: An Ex Ante Test of the Efficient Market Hypothesis.," The Journal of Financial and Quantitative Analysis, vol. 16, no. 3, pp. 341-360, 1981.
S. Agwuegbo, A. Adewole and A. Maduegbuna, "A Random Walk Model for Stock Market Prices," Journal of Mathematics and Statistics, vol. 6, no. 3, pp. 342-346, 2010.
L. Zatlavi and D. Y. Kenett, "The Design and Performance of The Adaptive Stock Market Index," Algorithmic Finance, vol. 3, p. 189–207, 2014.
G. Metcalfe, "The Mathematics of Market Timing," PLoS One, vol. 13, no. 7, 2018.
R. Lokani, T. Satjawathee and K. Jegasothy, "Selectivity and Market Timing Performance in a Developing Country's Fund Industry: Thai Equity Funds Case," Journal of Applied Finance and Banking, vol. 3, pp. 89-108, 2013.
W. L. Dellva, . A. L. DeMaskey and C. A. Smith, "Selectivity and Market Timing Performance of Fidelity Sector Mutual Funds," The Financial Review, vol. 36, no. 1, pp. 39-54, 2001.
Dalbar Inc., "Dalbar’s 22nd Annual Quantitative Analysis of Investor Behavior," 2016.
W. F. Sharpe, "The Arithmetic of Active Management," The Financial Analysts' Journal, vol. 47, no. 1, pp. 7-9, 1991.
P. A. Samuelson, "Proof That Properly Anticipated Prices Fluctuate Randomly," Industrial Management Review, vol. 6, no. 2, p. 41–49, 1965.
R. D. Henriksson, "Market Timing and Mutual Fund Performance: An Empirical Investigation.," The Journal of Business, vol. 57, no. 1, pp. 73-96, 1984.
E. J. Elton, M. J. Gruber, S. J. Brown and W. N. Goetzmann, Modern Portfolio Theory and Investment Analysis, New York: Wiley, 2002.
Publicado
Cómo citar
Número
Sección
Licencia
Reconocimiento-NoComercial-CompartirIgual
CC BY-NC-SA
Esta licencia permite a otros entremezclar, ajustar y construir a partir de su obra con fines no comerciales, siempre y cuando le reconozcan la autoría y sus nuevas creaciones estén bajo una licencia con los mismos términos.
Los autores pueden realizar acuerdos contractuales adicionales separados para la distribución no exclusiva de la versión publicada del artículo publicado en la revista (por ejemplo, publicarlo en un repositorio institucional o en un libro), sujeto a un reconocimiento de su publicación inicial en esta revista