The myth of business cycle sector rotation
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Date
2023-09-06
Open Access Location
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
John Wiley and Sons Ltd.
Rights
(c) 2023 The Author/s
CC BY 4.0
CC BY 4.0
Abstract
Conventional wisdom suggests that sectors/industries provide systematic performance and that business cycle rotation strategies generate excess market performance. However, we find no evidence of systematic sector performance where popular belief anticipates it will occur. At best, conventional sector rotation generates modest outperformance, which quickly diminishes after allowing for transaction costs and incorrectly timing the business cycle. The results are robust to alternative sector and business cycle definitions. We find that relaxing sector rotation assumptions and letting any industry excess return predict future returns of other industries results in predictability not significantly different than what would be expected by random chance.
Description
Keywords
business cycle, industry investments, investments, market efficiency, return predictability, sector rotation
Citation
Molchanov A, Stangl J. (2023). The myth of business cycle sector rotation. International Journal of Finance and Economics. Early View. (pp. 1-24).