A Novel Passive Investment Idea for Predictable Future Returns

A novel passive investment strategy involving a combination of buying indices and holding for varying period on rolling basis is explored and tested for both BSE-SENSEX and BSE-100 from 1991-2003. It's observed that with increasing holding period, the returns become more and more predictable. Further with varying combinations of holding period one can construct a risk - return portfolio starting from a probability of getting positive returns from 0.4 to 1.0 (i.e. guaranteed positive returns). As expected, lower risk translates to relatively lower expected returns. The theoretical basis of this idea is that - generally one can't beat the market and in simple - buy-hold strategy, intermediate profit opportunities cannot be exploited. It is suggested that mutual funds bring out such indexed based holding products, to address the varying risk appetites of the investors