Research in Focus: Can You Predict a Good Time to Buy and Sell Stocks?

variableCan investors predict when to buy and sell securities? Jim Davis, PhD,* runs more than 780 tests on data from 15 stock markets to test this theory.

Can you consistently buy low and sell high?

Is there real world evidence of knowing when the best times are and being profitable in the process?

They looked at 15 stock markets around the world testing trading rules such as moving average rules and run space rules. 780 results presented a small number of positive results, however most occurred in a single year which means it is unlikely such events may reoccur in the future, in other words random chance.

Mean Reversion exists but not as a profitable trading strategy. Details are discussed in the below short 4:34 minute video. Steady investing in broad markets provides market returns globally.

 

*Jim Davis brings both academic and business experience to his position as vice president in Dimensional’s Research group. Since the main focus of his research is the empirical analysis of stock returns, Jim has done substantial research into the sources of risk and return, including writing an important historical study with Eugene F. Fama and Kenneth R. French, “Characteristics, Covariances, and Average Returns: 1929 to 1997” in the Journal of Finance (2000). This influential study extended the Fama/French value database back to the 1920s, solidifying Dimensional’s knowledge and analysis of risk factors and returns.

Jim has been a professor of finance at Kansas State University and held positions with Arthur Andersen & Co. and Phillips Petroleum. He has also written and reviewed for many financial publications. Jim holds a PhD from the University of Illinois, an MBA from DePaul University, and a degree in finance from Oklahoma State University.

In the interest of disclosure: I do use DFA sub-managed SA Funds with most clients (not a fund requirement, but a business decision I’ve made). This blog is not a solicitation; simply an explanation of the basic philosophy and approach of the funds.

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