Does Market Timing Ever Work?

discusses market timing in an episode of Common Sense Investing. He acknowledges the idea of market timing and how even rational index investors may fall prey to it due to market volatility and high stock prices. However, he warns against confirmation bias and suggests looking at data instead. The Shiller CAPE is a reliable metric for forecasting future returns, and it has shown a relationship between high prices and lower returns in the past. However, there is a hindsight bias in the data, and a real investor wouldn’t know future evaluations. AQR paper “Market Timing, Sin a Little” adjusts for the bias by only considering the past 60 years of data, which results in a weaker relationship. The AQR paper also builds a market timing strategy, but it doesn’t prove to be effective for making investment decisions.