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A Market Timing Indicator
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A Market Timing Indicator

Exploring the Senior Loan Officer Survey

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QuantSeeker
Nov 18, 2024
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Introduction

Research indicates that tighter lending standards by banks are a negative predictor of future economic growth and stock returns. This article examines a lending standards indicator derived from the Federal Reserve's quarterly Senior Loan Officer Survey. I find that a simple market timing strategy based on this indicator has historically increased Sharpe ratios by up to 50% compared to a buy-and-hold approach, while significantly reducing drawdowns.

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