The cost of uninformed market timing

Investment board meetings typically include a macroeconomic review, and a discussion of the implications for asset allocation. Investors who are able to time the market can no-doubt obtain abnormal returns, but what is the cost for investors who attempt to time the market but have no genuine timing ability? We prove that for virtually any uninformed timing strategy there is a constant-allocation strategy that dominates it by First-degree Stochastic Dominance. Thus, constant allocation is superior not only for risk-averters, but for all investors with non-decreasing preferences, including Prospect Theory investors and investors with various aspiration levels. The cost of uninformed market timing is shown to be almost double than previous estimates, at about 2 % per year.