Market Timing Accuracy and Its Potential Gains Over Buy-and-Hold

Summary

The document seeks a study comparing an idealized market-timing strategy with buy-and-hold. The question describes a rule that buys after a market trough between record highs and sells at a new high, with the concern that long periods out of the market may weaken its returns. The response points to research on market timing and cites work by Bauer and Dahlquist and by Sharpe.

The reply states that long-run outperformance requires timing accuracy above 65%, but it does not explain how accuracy is defined, what assets or assumptions the cited studies use, or how the strategy described in the question maps to their analysis. The source therefore offers leads for further reading rather than a full comparison or a validated trading rule. Its claim should be interpreted in the context of the papers’ assumptions, which are not provided here.

Key ideas

• The question concerns whether highly accurate market timing can beat buy-and-hold despite time spent out of the market.
• The response cites research by Bauer and Dahlquist and by Sharpe as relevant reading.
• The response says long-run outperformance requires timing accuracy above 65%, without defining the measure or assumptions.
• The document does not provide enough detail to evaluate the cited studies or apply the claim as a trading rule.

Tags

# Paper on returns from perfect market timing?


# Paper on returns from perfect market timing?












I'm looking for a (free) paper I read which showed that even a "perfect" market timing strategy wasn't very good compared to buy-and-hold. There were some restrictions to the timing, something like: you buy at the lowest point between all time highs and sell at each all time high...and they concluded that it still wasn't a very good strategy because you spend a lot of time not invested.

Anyone know this study?

## Answer by vonjd (score 3)

https://quant.stackexchange.com/a/70642

In the long term, you will outperform buy & hold with a market timing accuracy of > 65%.

See these papers for more:

- Bauer, R.; Dahlquist, J.: „Market Timing and Roulette Wheels“, Financial Analysts Journal, 01 Jan 2001, Volume 57, Issue 1, https://doi.org/10.2469/faj.v57.n1.2417.

- Sharpe, W.: “Likely Gains from Market Timing”, Financial Analysts Journal, 31. December 2018, https://doi.org/10.2469/faj.v31.n2.60.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.