Global Tactical Sector Allocation: A Quantitative Approach
Ronald Q. Doeswijk
Pim Van Vliet
Robeco Asset Management - Quantitative Strategies
July 1, 2010
This study examines seven variables for Global Tactical Sector Allocation (GTSA) purposes. We construct 10 global sector indices over the extended sample period from 1970 to 2008. This enables us to test previously documented variables on a global basis and to examine whether they continued to work after their publication dates. We document significant returns for momentum (1-month and 12-1 month), earnings revisions and Sell in May seasonal, also after their publication dates. By contrast, monetary policy and valuation (mean-reversion and dividend yield) fail to predict global sector returns. Our out-of-sample tests reveal an average decay in performance of about one third. A long-short GTSA strategy that combines momentum with seasonal has an annual success ratio of 82% and delivers a compounded annual return of 9.9% after transaction costs. To the best of our knowledge, a global sector allocation study with such a long sample period and with such a broad range of variables has not been conducted before.
Number of Pages in PDF File: 26
Keywords: Global Tactical Sector Allocation, Out-of-Sample Predictability, Momentum, Earnings Revisions, Valuation, Fed Policy, Sell In May, Halloween Seasonal
JEL Classification: G11, G12, G14
Date posted: January 19, 2011
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