Post #4694 by lizgdal on the Mechanical Investing board

Investment Strategies / Mechanical Investing

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No. of Recommendations: 6

Dividing into 5 buckets based on CAEYb, from 1881.01 to 2025.12 the average subsequent stock returns were:

qCAEYb  Count  AvgCAEYb  Avg10yrStockSR  Avg5yrStockSR  Avg3yrStockSR  Avg1yrStockSR  Avg 10yrExcessSR  Avg 5yrExcessSR  Avg 3yrExcessSR  Avg 1yrExcessSR  StdDev 1yrExcessSR
  0      348     4.9%         2.2%           1.4%           0.6%           0.4%             1.0%             -0.7%            -1.8%            -0.5%               19%
  1      348     6.0%         6.4%           6.8%           6.0%           6.1%             4.2%              3.8%             3.5%             3.5%               16%
  2      348     7.0%         5.6%           7.1%           8.3%           10.7%            3.7%              5.1%             5.6%             7.0%               20%
  3      348     8.5%         8.2%           6.4%           8.1%           9.4%             7.5%              6.7%             8.3%             8.1%               18%
  4      348     12.0%       10.9%           13.1%          12.8%          15.3%            6.8%              9.5%             9.4%            12.3%               22%
                                                                                                                                                           
correl           1.00         0.93           0.91           0.91           0.90             0.81              0.93             0.87             0.95

Avg10yrStockSR is the average 10-year subsequent real stock total return (adjusted for inflation).

Avg 1yrExcessSR is the average 1-year subsequent real stock total return minus the real 1-year total return of 10-year bonds.

correl is the correlation with AvgCAEYb.

Low CAEYb had lower forward 1-year excess returns. The dates with low CAEYb (qCAEYb=0) can be summarized as:

  From     To     numMonths  Avg1yrExcessSR  StDev1yrExcessSR
1881.01  1906.11     120           1%              16%
1927.11  1937.08      56          -10%             33%
1955.07  1973.02     134           2%              12%
1987.08  1987.08      1           -22%
1997.07  2000.1       36           -1%             20%

High CAEYb had higher forward 1-year excess returns. The dates with high CAEYb (qCAEYb=4)can be summarized as:

  From     To     numMonths  Avg1yrExcessSR  StDev1yrExcessSR
1907.11  1907.11      1            45%
1914.08  1926.05     113           9%              17%
1931.12  1935.03      18           46%             49%
1941.12  1943.01      14           34%             13%
1948.01  1950.07      19           22%             11%
1974.07  1985.1      114           6%              15%
2002.09  2003.04      8            24%              7%
2008.03  2013.06      61           10%             22%

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