Does it Pay to Forecast the Business Cycle? A U.S. Update and an International Perspective

24 Pages Posted: 4 Jun 2017  

James A. Conover

University of North Texas - Department of Finance (FIREL)

David A. Dubofsky

University of Louisville - Department of Finance

Marilyn K. Wiley

University of North Texas College of Business

Date Written: Sept 1, 2016

Abstract

Over the period 1970-2015, investment returns were enhanced by merely knowing concurrently whether the economy was in a state of expansion or contraction, and making the most basic asset allocation decision of whether to be in stocks or bonds. In the United States, an annual excess return of 2.01% was earned by investing in stocks during expansions and in bonds during contractions. In eight foreign markets, the average annual excess return from the same strategy was 1.74%. Forecasting business cycle troughs is more important than business cycle peaks. The authors conclude simple passive timing improves fund performance using business cycle peaks/troughs, and even slight forecasting prowess is rewarded with positive performance. Importantly, even investors who invested one month after the cycle turns could still earn excess returns.

Keywords: business cycle, asset allocation

JEL Classification: G11, G14

Suggested Citation

Conover, James A. and Dubofsky , David A. and Wiley, Marilyn K., Does it Pay to Forecast the Business Cycle? A U.S. Update and an International Perspective (Sept 1, 2016). Available at SSRN: https://ssrn.com/abstract=2979464 or http://dx.doi.org/10.2139/ssrn.2979464

James A. Conover (Contact Author)

University of North Texas - Department of Finance (FIREL) ( email )

FIREL Department
Denton, TX 76203-5339
United States
940-565-3061 (Phone)

David A. Dubofsky

University of Louisville - Department of Finance ( email )

PO BOX 844000
Louisville, KY 40292
United States
502-852-3016 (Phone)
502-852-6072 (Fax)

HOME PAGE: http://cobweb2.louisville.edu/profile/Dubofsky.html

Marilyn K Wiley

University of North Texas College of Business ( email )

1155 Union Circle #311160
Business Leadership Building 290R
Denton, TX 76203-5017
United States
940-565-3034 (Phone)
940-565-4930 (Fax)

HOME PAGE: http://cob.unt.edu

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