RT Journal Article SR Electronic T1 Market Timing with the Backward SADF Test JF The Journal of Investing FD Institutional Investor Journals SP 32 OP 42 DO 10.3905/joi.2020.1.129 VO 29 IS 4 A1 Weilong Guo A1 Jacqueline Glyman YR 2020 UL https://pm-research.com/content/29/4/32.abstract AB In this article, the authors explore the possibility of acquiring positive returns from the stock market during bubble periods. A structural break test is used to detect bubbles, and a technical statistic is applied to decide the direction of the bet. Unlike most of the previous articles on trading strategies, the authors present the out-of-sample return distributions of the strategy with respect to different trading rules based on three stock data sets, which helps investors understand the profitability and risk of the method. The result shows that the strategy is highly robust across different data sets, as it can acquire positive returns for more than 95% of the cases, with the highest annualized averaged return per trade at more than 36%. Additionally, the win rates are significantly above 0.5 for more than 95% of the cases.TOPICS: Statistical methods, simulationsKey Findings• The backward SADF test was designed to detect recently formed exponential patterns in time series.• The proposed strategy applies the backward SADF test and MACD statistics to exploit the statistical arbitrage from the exponential patterns.• We validate the strategy by comparing it with the buy-and-hold and daily-rebalance strategies and by running the Hendrickson–Merton based on three different data sets.