A Quantitative Approach to Tactical Asset Allocation

Electronic copy available at: http://ssrn. com/abstract=962461 1 A Quantitative Approach to Tactical Asset Allocation Mebane T. Faber May 2006, Working Paper Spring 2007, The Journal of Wealth Management February 2009, Update ABSTRACT The purpose of this... More

Electronic copy available at: http://ssrn. com/abstract=962461 1 A Quantitative Approach to Tactical Asset Allocation Mebane T. Faber May 2006, Working Paper Spring 2007, The Journal of Wealth Management February 2009, Update ABSTRACT The purpose of this paper is to present a simple quantitative method that improves the risk-adjusted returns across various asset classes. A simple moving average timing model is tested since 1900 on the United States equity market before testing since 1973 on other diverse and publicly traded asset class indices, including the Morgan Stanley Capital International EAFE Index (MSCI EAFE), Goldman Sachs Commodity Index (GSCI), National Association of Real Estate Investment Trusts Index (NAREIT), and United States government 10-year Treasury bonds. The approach is then examined in a tactical asset allocation framework where the empirical results are equity-like returns with bond-like volatility and drawdown. Mebane T. Faber Cambria Investment Management Less