Alpha Architect examines whether combining valuation signals with momentum signals can improve market timing outcomes. The paper argues that value and trend following may work better together than alone, with the combined approach historically delivering stronger risk adjusted results while spending less time exposed to equity market drawdowns.
Market Timing with Value and Momentum
Alpha Architect
Jack Vogel
Research
1 Pages
Key Takeaways
Combined Signal Strength: Using both valuation and momentum signals produced a Sharpe ratio of 0.69 versus 0.47 for buy and hold from 1927 through 2014.
Lower Market Exposure: The combined strategy was invested in equities roughly 67% of the time, reducing exposure during historically expensive or weakening market environments.
Drawdown Reduction: Maximum drawdown improved to about negative 36% compared with roughly negative 51% for a buy and hold approach.
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