Mean-Variance Market Timing the U.S. Stock Market

103 Pages Posted: 21 Apr 2021 Last revised: 21 Oct 2021

See all articles by Luca Pezzo

Luca Pezzo

University of New Orleans

Lei Wang

University of New Orleans, College of Business Administration, Department of Economics and Finance, Students

Duygu Zirek

Feliciano School of Business-Montclair State University

Date Written: October 21, 2021

Abstract

While recently the after-cost profits of many anomalies are close to zero, investing according to the Mean-Variance (MV) criterion has never been so rewarding. The Global Minimum Variance Portfolio is the simplest option for small investors to profitably gain exposure to the market by timing stock covariances. Minimizing over transaction costs restores credibility in the capability of MV strategies to efficiently target risk premia by timing stock risk premia, additionally lowering downside risk and enhancing scalability. More generally, market timing and estimation error are important drivers behind the MV profitability in the U.S. stock market over the last century.

Keywords: Mean-Variance, Market-timing, Estimation Error, Transaction Costs, Profitability

JEL Classification: C61, D23, G11

Suggested Citation

Pezzo, Luca and Wang, Lei and Zirek, Duygu, Mean-Variance Market Timing the U.S. Stock Market (October 21, 2021). Available at SSRN: https://ssrn.com/abstract=3828222 or http://dx.doi.org/10.2139/ssrn.3828222

Luca Pezzo (Contact Author)

University of New Orleans ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Lei Wang

University of New Orleans, College of Business Administration, Department of Economics and Finance, Students ( email )

New Orleeans, LA
United States

Duygu Zirek

Feliciano School of Business-Montclair State University ( email )

Upper Montclair, NJ 07043
United States
9736554304 (Phone)
07043 (Fax)

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