Download this Paper Open PDF in Browser

Market Timing & Trading Strategies Using Asset Rotation

31 Pages Posted: 18 Jan 2010 Last revised: 19 Feb 2010

Panagiotis Schizas

University of Zurich - Department of Banking and Finance

Dimitrios D. Thomakos

University of Peloponnese - School of Management and Economics

Date Written: January 15, 2010

Abstract

In this paper we present empirical results on the statistical and economic viability of a market timing trading strategy that is based on rotation between two risky assets. We use data on Exchange Traded Funds (ETFs) and models for both the returns and the volatility of the underlying assets. We compare the performance of the suggested models with the standard benchmarks of a buy-and-hold strategy and an equally weighted portfolio. The underlying intuition for the use of such a strategy rests with literature on sign and volatility predictability. The rotation strategy, as we apply it in this paper, is not risk-neutral and assumes the presence of arbitrage opportunities in the markets. Our results show that even a naive model that is based on a moving average of relative returns can outperform both benchmarks and that more elaborate specifications for the rotation model may yield additional performance gains. We also find that, in many cases, the rotation strategy yields statistically significant sign predictions of the relative returns and volatility. While our results are particular to the data that we have used in our analysis they, nevertheless, support the market timing literature and show that an active trading strategy can be based on the concept of rotation.

Keywords: Exchange Traded Funds, forecasting, market timing, sign predictions, statistical arbitrage, technical trading, volatility timing

JEL Classification: C51, C53, G10

Suggested Citation

Schizas, Panagiotis and Thomakos, Dimitrios D., Market Timing & Trading Strategies Using Asset Rotation (January 15, 2010). Available at SSRN: https://ssrn.com/abstract=1537914 or http://dx.doi.org/10.2139/ssrn.1537914

Panagiotis Schizas (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Sch├Ânberggasse 1
Z├╝rich, 8001
Switzerland

Dimitrios D. Thomakos

University of Peloponnese - School of Management and Economics ( email )

Department of Economics
22100 Tripolis
Greece
+30 2710 230139 (Fax)

HOME PAGE: http://econ.uop.gr/~thomakos

Paper statistics

Downloads
2,849
Rank
3,111
Abstract Views
8,294