A Quantitative Approach to Tactical Asset Allocation

Abstract

This article presents a simple quantitative method that improves risk-adjusted returns across various asset classes. A moving-average timing model is tested in-sample on the United States equity market and out-of-sample on more than twenty additional domestic and foreign markets. The approach is then examined since 1972 in an allocation framework utilizing a combination of diverse and publicly traded asset class indices, including the Standard and Poor's 500 Index (S&P 500), Morgan Stanley Capital International Developed Markets Index (MSCI EAFE), Goldman Sachs Commodity Index (GSCI), National Association of Real Estate Investment Trusts Index (NAREIT), and United States Government 10-Year Treasury Bonds. The empirical results are equity-like returns with bond-like volatility and drawdown, and over thirty consecutive years of positive performance.