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- Title
DOES MARKET TEMING BASED ON P/E RATIOS IMPROVE BUY-AND-HOLD SAVINGS STRATEGIES?
- Authors
McManus, Ginette; Sharma, Rajneesh; Tezel, Ahmet
- Abstract
This paper investigates if incorporating market timing trading rules based on P/E ratios into buy-and-hold-strategies provide investors with higher income replacement ratios in retirement. Retirement income replacement ratios, or the level of retirement income needed upon entering retirement to maintain pre-retirement standard of living, are simulated under several assumptions for investors' pre-retirement savings rates and growth rates in gross income using real data over the 1936-2007 time period. Probability distributions for the retirement income replacement ratios are obtained and summary statistics are compared for numerous buy-and-hold and market timing strategies incorporating both fixed and shifting or life-cycle allocations to several asset classes. Our results show that market timing can work as buy- and-hold strategies complemented with easily implemented trading rules based on P/E ratios provide investors with the highest income replacement ratios in retirement.
- Publication
Journal of Personal Finance, 2010, Vol 9, p132
- ISSN
1540-6717
- Publication type
Academic Journal