Many investors use security selection models to evaluate a broad spectrum of investment information. But individual models often prove vulnerable to the dynamics of the business cycle. A model that performs well in one economic environment is likely to perform poorly in a different one. To the extent that model weakness or strength can be forecast, investors can employ models with greater effectiveness.
Correlations between various models and measures of interest rates and inflation indicate that growth models are more effective during periods of high inflation and less effective in a strong economy. Value-oriented models, however, perform well in periods of low inflation and in poor economic climates. Most of the models tested perform better in periods of low real interest rates. Past model performance is a generally good indicator of future performance.