AN ARGUMENT AGAINST STOCK-PICKING AND MARKET-TIMING: AN EMPIRICAL APPROACH
This paper’s objective is to demystify the world of investing, first by showing and exposing the results the greatest money managers in the Wall Street have obtained over the last years compared to the performance of their benchmark indexes. Index investing represents a passive investment strategy o...
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Universidad Privada Boliviana
2021-01-01
|
| Series: | Investigación & Desarrollo |
| Subjects: | |
| Online Access: | http://www.upb.edu/revista-investigacion-desarrollo/index.php/id/article/view/229 |
| _version_ | 1818617345451491328 |
|---|---|
| author | Enrique Rafael González Pozo |
| author_facet | Enrique Rafael González Pozo |
| author_sort | Enrique Rafael González Pozo |
| collection | DOAJ |
| description | This paper’s objective is to demystify the world of investing, first by showing and exposing the results the greatest money managers in the Wall Street have obtained over the last years compared to the performance of their benchmark indexes. Index investing represents a passive investment strategy of holding hundreds of stocks instead of the active management approach used by these experts. After exposing said results, a theoretical framework will be presented that explains why money managers have such a difficult time outperforming their benchmark indexes. Later on, a back-test experiment will be presented and thoroughly explained showing five different hypothetical investment scenarios over several 20-year periods with the attempt to quantify the potential benefit of perfectly timing the market and compare it to the cost of waiting for a better time to invest. The results find shows that the cost of waiting is much greater that the potential benefit of perfectly timing the market and the best alternative would be to invest available cash immediately regardless of market or economic outlook. |
| first_indexed | 2024-12-16T17:04:13Z |
| format | Article |
| id | doaj.art-2267309748f9447888ac06616da4c4a2 |
| institution | Directory Open Access Journal |
| issn | 1814-6333 2518-4431 |
| language | English |
| last_indexed | 2024-12-16T17:04:13Z |
| publishDate | 2021-01-01 |
| publisher | Universidad Privada Boliviana |
| record_format | Article |
| series | Investigación & Desarrollo |
| spelling | doaj.art-2267309748f9447888ac06616da4c4a22022-12-21T22:23:37ZengUniversidad Privada BolivianaInvestigación & Desarrollo1814-63332518-44312021-01-0120210.23881/idupbo.020.2-6e219AN ARGUMENT AGAINST STOCK-PICKING AND MARKET-TIMING: AN EMPIRICAL APPROACHEnrique Rafael González Pozo0Universidad Privada BolivianaThis paper’s objective is to demystify the world of investing, first by showing and exposing the results the greatest money managers in the Wall Street have obtained over the last years compared to the performance of their benchmark indexes. Index investing represents a passive investment strategy of holding hundreds of stocks instead of the active management approach used by these experts. After exposing said results, a theoretical framework will be presented that explains why money managers have such a difficult time outperforming their benchmark indexes. Later on, a back-test experiment will be presented and thoroughly explained showing five different hypothetical investment scenarios over several 20-year periods with the attempt to quantify the potential benefit of perfectly timing the market and compare it to the cost of waiting for a better time to invest. The results find shows that the cost of waiting is much greater that the potential benefit of perfectly timing the market and the best alternative would be to invest available cash immediately regardless of market or economic outlook.http://www.upb.edu/revista-investigacion-desarrollo/index.php/id/article/view/229market -timing, market efficiency hypothesis, portfolio management, investment. |
| spellingShingle | Enrique Rafael González Pozo AN ARGUMENT AGAINST STOCK-PICKING AND MARKET-TIMING: AN EMPIRICAL APPROACH Investigación & Desarrollo market -timing, market efficiency hypothesis, portfolio management, investment. |
| title | AN ARGUMENT AGAINST STOCK-PICKING AND MARKET-TIMING: AN EMPIRICAL APPROACH |
| title_full | AN ARGUMENT AGAINST STOCK-PICKING AND MARKET-TIMING: AN EMPIRICAL APPROACH |
| title_fullStr | AN ARGUMENT AGAINST STOCK-PICKING AND MARKET-TIMING: AN EMPIRICAL APPROACH |
| title_full_unstemmed | AN ARGUMENT AGAINST STOCK-PICKING AND MARKET-TIMING: AN EMPIRICAL APPROACH |
| title_short | AN ARGUMENT AGAINST STOCK-PICKING AND MARKET-TIMING: AN EMPIRICAL APPROACH |
| title_sort | argument against stock picking and market timing an empirical approach |
| topic | market -timing, market efficiency hypothesis, portfolio management, investment. |
| url | http://www.upb.edu/revista-investigacion-desarrollo/index.php/id/article/view/229 |
| work_keys_str_mv | AT enriquerafaelgonzalezpozo anargumentagainststockpickingandmarkettiminganempiricalapproach AT enriquerafaelgonzalezpozo argumentagainststockpickingandmarkettiminganempiricalapproach |