Abstract
In this paper, we investigate the risk-Adjusted performance of US sector portfolios and sector rotation strategy using the alphas from the Fama-French five-factor model. We find that five-factor model fits better the returns of US sector portfolios than the three-factor model, but that significant alphas are still present in all the sectors at some point in time. In the full sample period, 50% of sectors generate significant five-factor alpha. We test whether such alpha signifies a true sector out/underperformance by applying simple long-only and long-short sector rotation strategies. Our long-only sector rotation strategy that buys a sector with a positive five-factor alpha generates four times higher Sharpe ratio than the S&P 500 buy-And-hold. If the strategy is adjusted to switch to the risk-free asset in recessions, the Sharpe ratio achieved is tenfold that of the buy-And-hold. The long-short strategy fares less well.
Originalsprog | Engelsk |
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Tidsskrift | Journal of Asset Management |
Vol/bind | 19 |
Udgave nummer | 2 |
Sider (fra-til) | 116-132 |
Antal sider | 17 |
ISSN | 1470-8272 |
DOI | |
Status | Udgivet - 1 mar. 2018 |
Udgivet eksternt | Ja |