I’ve been sending e-mails to numerous people, letting them know about my article reporting on The Silencing of Academic Researcher Wade Pfau by the Buy-and-Hold Mafia.
Valeriy Zakamulin, a professor in the Department of Economics and Business Administration at the University of Agder, wrote:
“I agree that the topic of stock return predictability is indeed controversial. Yet I would not agree that all academic professors deny the existence of predictability. If a paper that supports return predictability is not accepted, this usually does not mean that an editor or a reviewer disbelieves in it. Most often there are some serious flaws in research design. Typical flaws are data-mining bias, look-ahead bias, econometric pitfalls, etc. There have been published many papers in top academic journals that find in-sample predictability.”
Personally I believe in stock return predictability, see my paper
Thanks a million for that extremely helpful response.
One, I appreciate the context you provided re why some research in this area may have been rejected. There are some who adopt views re this matter that I view as excessively cynical. It cheers me to hear someone who is more knowledgeable than me about the technical aspects of the question who is able to offer a more charitable and encouraging and positive take.
Two, I did not know about your research and I am so happy that now I do! I have downloaded the paper and will give it a careful read over the next week or so (I am at the moment trying to complete a few projects I need to put behind me before taking a few days off for the holidays).
I am not an investing expert. I do not have the technical background you possess. I am a journalist. I do think I possess a strong grasp of the political aspects of the question (as noted above, I tend to be inclined to a more optimistic take than some of the others who share my concern that we need to move forward more quickly than we have been re challenges to the conventional thinking). I also have done a lot of work exploring the how-to-invest implications of Shiller’s findings and the research that followed from it. Please feel free to shoot me an e-mail if you ever have an interest in talking over any questions re which you believe that I might be able to offer any help.
I’ll ask you one question that I think is key to making sense of all this. Please don’t feel that I am demanding or even expecting an answer for you. I am just throwing this question out there in the event that it might be helpful to do so.
You say that there are many papers in top journals showing in-sample predictability. Do you know of any that show the opposite — that long-term market timing does NOT work? My sense is that the source of all the confusion is that those who believe in the Efficient Market Theory ASSUMED that long-term timing does not work without ever showing this to be so and that the problem ever since has been that people don’t want to reject this assumption because so many books and articles and calculators were built on this foundational belief.
The idea that timing doesn’t work became the default position, so the burden was placed on those who believe in predictability to prove their case while it really should be the other way around — we should be assuming that long-term timing always works (since long-term timing is paying attention to price and price discipline is what makes markets work) and challenging those who do not believe that long-term timing is required to present evidence in support of their case.
IS there any evidence that supports the claim that long-term timing is not required? Wade Pfau spent a good bit of time trying to find something re this point and came up empty-handed. He even went to the Bogleheads Forum and asked if anyone there knew of any studies showing that long-term timing does not work or is not required for long-term success. No one there knew of any work that had been done on this particular point.
Thanks so much for doing the work you do, which I believe (I am biased — but still…) is the most important research work (in any field!) being done today. I wish you the best of luck in all your future endeavors.