Some Empirical Foundations for Tactical Asset Allocation

Abstract

Certain price “signals” produced by financial markets appear to contain substantial information about future asset returns and macroeconomic behavior. Recognizing and exploring this opportunity, the article proposes and illustrates a simple model for anticipating the absolute and relative performance of the major asset classes. It reviews evidence for the broad predictive power of two particular market signals: credit spreads and the price of gold. The reader should bear in mind that the model is one that is derived from the evidence, rather than a model that the evidence is used to test.