Title: A quantitative approach to Faber's tactical asset allocation

Authors: Stefano Marmi; Claudio Pacati; Roberto Renò; Wiston Adrián Risso

Addresses: Scuola Normale Superiore, Piazza dei Cavalieri 7, 56126 Pisa, Italy ' Dipartimento di Economia Politica e Statistica, Università di Siena. Piazza S. Francesco 7, 53100 Siena, Italy ' Dipartimento di Economia Politica e Statistica, Università di Siena. Piazza S. Francesco 7, 53100 Siena, Italy ' Dipartimento di Economia Politica e Statistica, Università di Siena. Piazza S. Francesco 7, 53100 Siena, Italy

Abstract: Routinely, practitioners and academics alike propose the use of trading strategies with an alleged improvement on the risk-return relation, typically entailing a considerably higher return for the given level of risk. A very popular example is "A quantitative approach to tactical asset allocation" by the fund manager M. Faber, a real hit in the SSRN online library. Is this paper a counterexample to market efficiency? We reject this conclusion, showing that a lot of caution should be used in this field, and we indicate a series of bootstrapping experiments which can be easily implemented to evaluate the performance of trading strategies.

Keywords: portfolio management; bootstrap; market efficiency; Faber; tactical asset allocation; performance evaluation; trading strategies.

DOI: 10.1504/IJCEE.2013.056268

International Journal of Computational Economics and Econometrics, 2013 Vol.3 No.1/2, pp.91 - 101

Published online: 05 Sep 2013 *

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