Equity-style timing: A multi-style rotation model for the Russell large-cap and small-cap growth and value style indexes
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Bala G. Arshanapalli is Professor of Finance and the Kenneth A. and Marjorie A. Gallagher-Mills Chair in Business and Economics at Indiana University Northwest, Gary, Indiana, USA. He has published widely, and is a member of the Editorial Board of the International Journal of Operations and Quantitative Management. He has consulted for many firms and organisations, including unext.com, Ibbotson Associates, Sears Roebuck Company, NIPSCO Industries, and US Gary Works. He obtained his PhD from Northern Illinois University in 1988. His research interests include asset allocation, retirement planning and empirical methods in financial time series modelling.
Lorne N. Switzer is Professor of Finance and the Van Berkom Endowed Chair in Small Cap Equities in the John Molson School of Business at Concordia University in Montreal, Canada. He also serves as Associate Director of the Concordia-HEC Institute for Governance of Public and Private Organizations. He has published numerous academic articles and books and serves on the Editorial Boards of European Financial Management and La Review Financier. He has served as a consultant for several business firms and government organisations, including the Caisse de De´pot et Placement du Que´bec, Schlesinger Newman Goldman Inc, AMI Partners, Inc, Bank Credit Analysts Research Group, and the Bourse de Montre´al. He obtained his PhD from the University of Pennsylvania in 1982. His research interests are in the areas of investments, portfolio management, asset allocation, derivative securities, corporate governance and the economics of technological change.
Karim Panju is Investment Compliance Specialist at Fidelity International, Bermuda. A native of Montreal, he obtained his Bachelors degree in Entrepreneurship and Finance at McGill University in 1999. He completed his Master of Science in Administration (Finance) from the John Molson School of Business at Concordia University, Montreal, Canada in 2004. Van Berkom Endowed Chair of Small Cap Equities, Finance Department, John Molson School of Business, Concordia University, 1455 De Maisonneuve Blvd. W., Montreal, Quebec, Canada H3G 1M8. Tel: þ 1 514 848 2424, x2960 (o); Home and fax: þ 1 514 481 4561; E-mail: [email protected]
Abstract Researchers and practitioners have devoted considerable attention to devising market-timing strategies as potential value-enhancement tools. The success of such active or tactical asset allocation strategies is dependent on their ability to capture either inefficiencies, to the extent that they exist, or disequilibria associated with changes in the investor opportunity set. Much of the equity-style timing literature focuses on the shifting between pairs of risky assets or between one risky and one riskless asset class, using a binomial approach. This paper develops a multinomial timing model based on macroeconomic and fundamental public information using Frank Russell large-cap and small-cap style indexes. We model four different market segments simultaneously. Out-of-sample tests demonstra
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