E. A. Boehm

Using economic indicators to reduce risk in stock market investments

Abstract This paper shows how the risk of price declines in stock market investments can be reduced by using a sequential signal system to determine when to buy or sell. The signals are based on growth rates in long-leading indexes and in broad stock price indexes. Tests of the method during the past 20 years or more are shown for Australia, France, Germany, Japan, the UK and the USA. In some instances the reduction in risk (measured in terms of volatility of rates of return) is achieved at the cost of a lower average rate of return, but in other cases the average rate of return may be significantly higher than that obtained by a simple buy-and-hold strategy.

Financial market forecasts and rates of return based on leading index signals

Abstract This report describes and analyzes a practical system which will assist financial analysts and portfolio managers to maximize the annual rate of return in their asset-allocation program when choosing between stocks, short-term bills and long-term bonds. The level and stability of the total rates of return (from capital gain or loss and dividends or interest) are compared for various investment strategies. Our objective is achieved by developing, with the aid of new long-leading indexes, a method of forecasting the beginning and end of major bull markets in stock prices. During bear-market periods the choice between short-term bills and long-term bonds is governed by signals from a leading index of inflation. The paper reports the findings for Australia, Japan, the United Kingdom, the United States and West Germany.