Generating Excess Returns Through Global Industry Rotation
36 Pages Posted: 24 May 2006
Date Written: March 2006
Numerous studies have shown that international diversification across global equity markets can lead to improved performance on a risk adjusted basis when compared to investing in domestic equity markets. Early studies provided empirical evidence that country and industry effects were important factors in explaining total returns. These studies generally concluded country factors dominate industry factors. Recent studies however provide evidence this view is changing in that industry effects are at least as important as country effects. With the increasing importance of industry effects it makes sense to investigate what investment strategies could lead to improved investment performance in relation to global equity markets. We examine a number of commonly used investment strategies in relation to industry rotation. Our results indicate that each of the strategies can earn significant positive excess returns. Yet these strategies appear to act quite differently. Each of the strategies breaks down at some point in time, but by combining the strategies into a portfolio of strategies we are able to generate more consistent performance with improved levels of significance.
Keywords: Global Industry Rotation
JEL Classification: G11, G15
Suggested Citation: Suggested Citation