Introduction and Applications of the Investment Clock Theory

Abstract

This paper is based on the broad asset allocation theory proposed by Merrill Lynch & Co. known as the ''Merrill Lynch Investment Clock Theory.'' Further asset allocation optimisation and decision making on the Merrill Lynch Investment Clock Theory, starting with forecasting recessions and inflation, combined with yield curve term spreads and risk premiums. Further, according to the literature, it is found that the term spread, and risk premium indices have good prediction results for recession. But simply considering these is not enough, need to introduce term spreads and risk premiums into the traditional Merrill Lynch investment clock theory to reassemble the financial investment clock portfolio, the principle is to change the traditional division of the economic cycle.