Hull Tactical Asset Allocation

Market Timing & Predictability Quiz

The following quiz is meant to test your general knowledge of return predictability. The first half of the quiz is meant to test your general knowledge of the topic, and the second half is specific to our approach as outlined in our research paper.

The equity premium is equal to the difference between the S&P 500 returns and the T-bill rate.

True

False

The equity premium is always 6%.

True

False

All academics agree that market returns are predictable.

True

False

Nobel laureate Robert Merton called attempts to estimate changing equity premiums a “fool’s errand”.

True

False

“The trend is your friend”. A variable based on the short-term price trend is positively correlated with future returns.

True

False

New orders and shipments have a positive relationship with future returns.

True

False

It is possible to form an investment strategy based on equity premium forecasts.

True

False

In our paper “A Practitioner’s Defense of Return Predictability”, we show that there is substantial predictive power in combining forecasting variables using correlation screening to forecast market returns six months into the future.

True

False

1 out of 8

Time's up

If you are interested in learning more about our approach to forecasting returns, the following questions relate to our research paper “ A Practitioner’s Defense of Return Predictability”.

Practitioners Defense of Return Predictability

The following quiz is meant to test your knowledge specific to our approach as outlined in our research paper.

All of the variables used in “A Practitioner’s Defense of Return Predictability” have been proposed in the academic literature.

True

False

Using all of the variables is called a “Kitchen Sink Model”. We always include all 20 variables in the model.

True

False

The market-timing strategy never uses leverage.

True

False

On average, the strategy employed in the paper is not tax efficient.

True

False

The maximum drawdown of the market-timing strategy is similar to that of buy-and-hold.

True

False

In the paper, the market-timing strategy underperformed buy-and-hold every year.

True

False

A systematic and disciplined approach will be essential for this strategy to work in the long run.

True

False

Implementing the proposed strategy will be easy. The data is publicly available and the system requires almost no effort to set up.

True

False

If investors took a disciplined and systematic approach to market timing using return predictability, markets would be less volatile.

True

False

1 out of 9

Time's up