26 Pages Posted: 19 Jan 2011
Date Written: 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.
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
Suggested Citation: Suggested Citation
Doeswijk, Ronald Q. and van Vliet, Pim, Global Tactical Sector Allocation: A Quantitative Approach (July 1, 2010). Available at SSRN: https://ssrn.com/abstract=1742422 or http://dx.doi.org/10.2139/ssrn.1742422