Documentation for the market timing model of the open source hedge fund

Market Timing Models For A Momentum Strategy.

By Sandra Makumbirofa Everyone has an opinion about what the state of the market will be in the short term or long term, never mind that stock prices follow a random walk or the possible clash between that comes between the invisible hand of the market and the regulatory rules made by policy makers. Returns […]

Introduction to Market timing models

By Sandra Makumbirofa

The study of stock market trading is synonymous for its random walk properties, yet there is still a strong controversial school of thought that supports the idea of ‘market timing’. Detemple and Rindisbacher (2013:2492) describe market timing as the ability to extract information about future market returns of an investment. These market timing models aim to provide a lower-risk strategy for growing portfolios by shifting assets during periods of high risk and low risk.

Since trading on the stock market involves constant buying and selling of stock to increase one’s profitability, traders have long been looking for the key to effectively anticipate the market ahead of other traders. The disadvantage of discovering this key is that a truly successful market timing method is not sustainable in the long-run because as more and more traders discover it, it ceases to be effective (Dickson & Knudsen, 2012:1). Read more