Timing strategy (finance)
Under a timing strategy (or English market timing ) is meant an investment strategy that attempts cheaper by determining points in time for entry and exit at a value paper to obtain a yield. For this purpose, a switch is made between two or more investment instruments at certain times.
As a rule, two instruments are used that have a different characterization with regard to expected value and variance . A typical timing strategy invests in stocks and overnight money , for example . Equity returns have a high expected value, but a large variance. Call money, on the other hand, has a lower expected value, but also a lower variance. The timing strategy now tries to invest time in the cheapest investment instrument.
In contrast to the timing strategy, there is the buy and hold strategy , in which the investor invests in financial instruments and holds them over the entire period.
Timing criteria
The timing can be controlled using different criteria. Technical criteria can e.g. This could be, for example, exceeding or falling below certain moving averages , which trigger a reallocation to the other investment instrument. Fundamental criteria trigger reallocations based on basic economic data, such as economic growth or corporate profits.
Periodicity of timing
A distinction is made between short-term and longer-term timing strategies. Short-term timing strategies are characterized by a rapid change in investment instruments. Reallocations take place quickly, sometimes within a day. Short-term strategies are more technically oriented and follow trends . Longer-term timing strategies remain invested in a plant for longer periods of time. Transaction costs remain rather low there. Fundamental economic data are also used as a timing criterion.
Web links
literature
- Siegel, Jeremy J .: Stocks for the long run , McGraw-Hill, New-York, 2002