It Takes Two to Tango: Fundamental Timing in Stock Market

International Journal of Finance & Economics, Forthcoming

41 Pages Posted: 29 Oct 2018 Last revised: 14 Oct 2020

See all articles by Guohao Tang

Guohao Tang

Hunan University - College of Finance and Statistics

Fuwei Jiang

Central University of Finance and Economics (CUFE)

Xinlin Qi

Industrial and Commercial Bank of China (ICBC), Global Market Dept.

Nan Huang

Harvest Fund Management Co., Ltd.

Date Written: September 21, 2018

Abstract

In this paper, we propose a fundamental timing strategy in both U.S. and Chinese stock market to trade the fundamental sorted portfolios such as value and profitability portfolios in the time series dimension. We find that fundamental timing strategies based on moving average (MA) timing signals could generate substantial performance improvements relative to corresponding buy-and-hold fundamental strategies. The annualized average return of the 20-day MA fundamental timing strategies reaches about 37% with Sharpe ratio nearly 1.30. These findings are robust to Fama-French factor model adjustment, alternative lag lengths of MA signals, holding days, and transaction costs. Moreover, we find that the fundamental timing premium cannot be explained by market timing ability or business cycle, and fundamental timing is more profitable among firms with high idiosyncratic volatility and high illiquidity measures.

Keywords: Value Investing, Trend Following, Fundamental Timing Strategy, Chinese Stock Market

JEL Classification: G12, G14

Suggested Citation

Tang, Guohao and Jiang, Fuwei and Qi, Xinlin and Huang, Nan, It Takes Two to Tango: Fundamental Timing in Stock Market (September 21, 2018). International Journal of Finance & Economics, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3252887 or http://dx.doi.org/10.2139/ssrn.3252887

Guohao Tang

Hunan University - College of Finance and Statistics ( email )

Lushan Road (S), Yuelu District
Changsha, Hunan 410006
China

Fuwei Jiang (Contact Author)

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Xinlin Qi

Industrial and Commercial Bank of China (ICBC), Global Market Dept. ( email )

55 Fuxingmennei Avenue
Xicheng District
Beijing, 100140
China

Nan Huang

Harvest Fund Management Co., Ltd.

Beijing
China

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