Is Buy and Hold Investing Really Dead?

Abstract

The objective of this paper is to create a metric, called the MT-BH indicator (Market timing- Buy and Hold) to determine when conditions are favorable for the opposing investing strategies of buy and hold or market timing. Macro-economic variables of GDP growth rate and inflation growth rate are then regressed to explain the favorability of buy and hold or market timing investing strategies. Using MSCI returns from 44 countries for the period of 1995 thru 2008, I found that high levels of inflation rate and GDP growth rate were both significant and favored a buy and hold investing strategy. Conversely, a market timing strategy was favorable when GDP and inflation rates were low or negative. These results were robust to country level of development and negative market return years within each country. The MT-BH indicator gives investors and brokers a metric which provides a signal when to adjust investing strategies from a buy and hold strategy to a market timing strategy.