Improving Status Quo Rationale to Improve Middle Income Households

This study demonstrates correlation between economic trends and changes in markets. They also show that CAPE downside management is effective in combination with a delay and dynamic asset allocation.

Summary of Research

Many families lost decades of wealth during the last economic recession and turning away from financial markets resulted in them being unable to recover their losses fast enough. This paper develops a new investment strategy that meets the needs of these middle-income people.

The CAPE ratio was used to do downside management for an aggressive portfolio, a moderate portfolio, and a fluid portfolio. All of the portfolios were dynamically allocated and targeted different risk tolerances. Machine learning algorithms were also used to make one-year forecasts of the market using economic data from the Federal Research Economic Dataset. Both the aggressive and moderate portfolios successfully avoided large losses during economic downturns. The aggressive portfolio (100% stock allocation) beat the market by nearly 1% annually, the moderate portfolio (60% stocks and 40% one-year treasury bills) did not beat the market but beat the original strategy by 0.4% annually, and the fluid portfolio was close but did not beat the original or the market.

The Nu Support Vector Regression model was able to predict normalized NYSE closing prices one year in advance with 80.7% accuracy and with an R2 value of 0.594 (out of 1.0); however, it was a better predictor of long-term trends than middle term trends as it predicted movement about an average, but not the absolute magnitude of the prices itself.

These results demonstrate correlation between economic trends and changes in markets. They also show that CAPE downside management is effective in combination with a delay and dynamic asset allocation.

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Improving Status Quo Rationale to Improve Middle Income Households

This study demonstrates correlation between economic trends and changes in markets. They also show that CAPE downside management is effective in combination with a delay and dynamic asset allocation.

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