Year of Graduation
Sector Rotation Investment Strategy in the Stock Exchange
This paper examines the investment sector rotation strategy, which is the combination of securities of cyclical and defensive sectors based on the stage of the business cycle. The analysis of the impact of macroeconomic factors on industry profitability has been conducted using the econometric GARCH model. The results showed that the PRIME rate, the indicator of the length of the workweek, the index of business optimism and other variables have a significant impact on industry profitability. However, the model delivers a number of false signals, which indicates its instability and the need in the other explanatory variables to be included. In addition, "cyclical" and "defensive" portfolios has been tested. The results show the low excess returns during all the stages of business cycle, which indicates the ineffectiveness of this strategy.