Valuation-based asset allocation attempts to increase returns through market timing. When an investor thinks that an asset class is undervalued, they will increase the weight of the portfolio allocated to that asset class, and when an investor thinks that an asset class is overvalued, they will reduce the weight allocated to that asset class. There is no evidence that investors can determine whether a stock or asset class is over or under valued. Often an investor will use bands to limit the amount that the portfolio can deviate from the base asset allocation.
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