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How Meb Faber Timing Model Inspired Improving Portfolio Construction in China
- 1 Nanjing Baixi Culture Communication Co., Ltd.
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Abstract
Controlling risk is one of the most crucial steps when constructing investing portfolios. This paper started with tactical asset allocation (TAA), which investors would prefer compared to other long-term strategies within an acceptable range of risk. According to the report from Faber, his quantitative marketing timing model can manage risks, which means it can be applied to improve the process of portfolio construction, and the shining point of the model is that investors would choose the way that minimizes the loss if the draw-down of return is unavoidable when facing the volatility of a market. This paper evaluated Faber’s timing model by applying it to China’s capital market, where there are supposed to be more extreme cases. Also, since there are relatively few studies examining the timing effect and combining it with asset allocation as a reference in China, this paper studied one experiment in 2017 by two scholars who were familiar with the local market to prove that timing strategies also require timely adjustment of tactical asset allocation to achieve better returns. On the other hand, when there are signs that the economic environment is going to experience a recession, investors could get inspiration from this paper on how to promptly adjust the factors in the timing model to better adapt to the changing market.
Keywords
tactical asset allocation, timing model, portfolio construction
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[2]. Lee, Wai. Theory and Methodology of Tactical Asset Allocation. New Hope, Pennsylvania, Frank J. Fabozzi Associates, 15 Aug. 2000, p. 9-10.
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[4]. Faber, Meb, “Global Value: Building Trading Models with the 10 Year CAPE” , August 14, 2012. Cambria Quantitative Research, No. 5, August 2012, Available at SSRN: https://ssrn.com/abstract=2129474
[5]. Zhou, Liang, and Xiaofeng Wei. “Faber’s Tactical Asset Allocation and Timing Effect Test Based on Chinese Capital Market Data.” Financial Development Research, vol. 72, no. 07, 19 Mar. 2019, pp. 72–78, https://doi.org/10.19647/j.cnki.37-1462/f.2019.03.010.
Cite this article
Wang,K. (2024). How Meb Faber Timing Model Inspired Improving Portfolio Construction in China. Advances in Economics, Management and Political Sciences,72,75-81.
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Volume title: Proceedings of the 2nd International Conference on Management Research and Economic Development
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