The Feasibility Study of Merrill Lynch Investment Clock Theory in China's Asset Allocation
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Yongzhe Li, Liyang Chen
Merrill Lynch investment clock theory is an effective method links the economic cycle and asset allocation strategy from the perspective of the overall macro-economy by judging the economic situation in the United States. However, the underlying mechanisms remain poorly understood in China for the economy system in the U.S and China have vast differences and this theory use the data OECD “output gap” which do not has uniform monthly value in China. To define the feasibility of the study in China, we have verified and improved the original theory through quantitative analysis. Intriguingly, the application of the ameliorated theory in China is more scientific. These results signify a critical role for Chinese people cannot obtain additional investment returns by using the traditional theory. We therefore propose that the original theory should be improved when it is applied to other countries.
Merrill Lynch investment Clock theory, Output gap, Asset allocation