When to Gamble in the Stock Market

37 Pages Posted: 11 Sep 2010 Last revised: 6 Feb 2015

Date Written: June 25, 2011


The objective of this study is to determine if readily available finance and macro-economic variables can help investors determine which years are more favorable to pursue market timing strategies and which years favor buy and hold investing. When real GDP growth rates, inflation rates and PE ratios were low or negative and when dividend yields were high, market timing strategies were favorable across 44 country market indexes from 1994-2008. These results were robust to country level of development, negative market return years and other control variables. The conditions for pursing market timing strategies were time variant and detectable with macro-economic and finance variables. A metric (Market Timing – Buy and Hold) was tested which measures the conditions of pursuing market timing strategies relative to buy and hold investing. The MT-BH metric allows investors and brokers to determine when to switch from buy and hold investing to a market timing strategy using macro-economic and financial variables and helps to explain why market timing skill of managers is rarely found to be persistent.

Keywords: Market timing, Investing performance

Suggested Citation

Johnson, William Fount, When to Gamble in the Stock Market (June 25, 2011). Available at SSRN: https://ssrn.com/abstract=1675268 or http://dx.doi.org/10.2139/ssrn.1675268

William Fount Johnson (Contact Author)

University of Memphis - Finance ( email )

United States