Usefulness of Standard Economic Indicators within Tactical Asset allocation

The first post on Modern TAA was a look at what 3 research think tanks thought about the Usefulness of Standard Economic Indicators within Tactical Asset allocation…

drumroll…

they think it works…

BUT the 3 thought leaders would struggle to convince a jury they particularly unbiased: Journal of professional portfolio managers European, European investment Bank (EIB) & Stockholm mathematics department 

In conclusion the studies suggest a simple combination approach based on percentile scores of standard indicators from four scientifically valid areas (valuation, trend, risk, and macroeconomics) can significantly improve a multi-asset portfolio’s performance and generate high information ratios.

Personally, for medium- and long-term investors, macro- based asset allocation using standard indicators is a solid avenue to follow. Yet for a practitioner looking at risk management, it would be desirable to better understand the dynamic link between asset prices and cyclical conditions, as the former is an amplifying driver for macroeconomic and financial downturns and vice versa.

In short, it works but not all the time. :)

And this is why I feel this topic is so exciting to explore, as with all scientific disciplines, economics is evolving, "embracing openness and process, and asking how structures or phenomena come into being."

As professional practitioners we can continue assuming no change to the field or look to evolve alongside. 

Summary

There is value in better understanding how Standard Economic Indicators within Tactical Asset allocation, so we will continue to dive in.

See list of topics we will explore here:

https://www.dhirubhai.net/posts/garethnicholson_neverstoplearning-askthatquestion-economy-activity-6773041394090147840-obkC

The Markets changing/needs refinement so best we change and re-educate alongside.

On this point we start with recommended reading list:

1) Money and Asset Prices in Boom and Bust - pdf available here (https://lnkd.in/gMy4RCW)

2) Economyths - Orrell

3) Fooled by Randomness - Taleb

4) The Drunkard's Walk - Mlodinow

5) The Money Formula - Wilmott and Orrell

6) Expected Returns - Ilmane

7 )Forward Rates and Expected Rates are NOT the same

8 )Trading the Fixed Income, Inflation and Credit Markets A Relative Value Guide - Bowler & Schofield

9)Risk and Asset Allocation" from Attilio Meucci.

Also a list of interesting course to consider on topic

1. Explore the elements of Quantamental #investing with Dan Duggan, Senior Data Scientist at Goldman Sachs and discover how employing multiple models in your security selection process will improve predictive accuracy. Link: https://www.dhirubhai.net/posts/artificial-intelligence-%26-big-data---financial-markets_ai-data-science-in-trading-activity-6775081004009828352-oalU
2.  "Forward Rates and Expected Rates are NOT the same" Link: https://www.coursera.org/lecture/money-banking/forward-rates-are-not-expected-spot-rates-3J2v1
3. Finally, a introduction to interesting field of economics called complexity economics. There are a lot of good resources available on topic of complexity economics. Here is my favorite primer: https://www.nature.com/articles/s42254-020-00273-3.pdf?error=cookies_not_supported&code=d02124d2-c19e-4801-b3a8-e0a85736594b

Would love to hear your thoughts on our progress to date.

All the best G