Oct 30, 2017

Reducing Sequence Risk Using Trend Following and the CAPE Ratio, Clare et al. 2017 CFApubs.org




[abstract] The risk of experiencing bad investment outcomes at the wrong time, or sequence risk, is a poorly understood but crucial aspect of the risk investors face—particularly those in the decumulation phase of their savings journey, typically over the period of retirement financed by a defined contribution pension scheme. Using US equity return data for 1872–2014, we show how this risk can be significantly reduced by applying trend-following investment strategies. We also show that knowing a valuation ratio, such as the cyclically adjusted price-to-earnings (CAPE) ratio, at the beginning of a decumulation period is useful for enhancing sustainable investment income.

http://www.cfapubs.org/doi/abs/10.2469/faj.v73.n4.5

No comments:

Post a Comment