Working Paper
Market timing with aggregate and idiosyncratic stock volatilities
Abstract: Guo and Savickas [2005] show that aggregate stock market volatility and average idiosyncratic stock volatility jointly forecast stock returns. In this paper, we quantify the economic significance of their results from the perspective of a portfolio manager. That is, we evaluate the performance, e.g., the Sharpe ratio and Jensen's alpha, of a mean-variance manager who tries to time the market based on those two variables. We find that, over the period 1968-2004, the associated market-timing strategy outperforms the buy-and-hold strategy, and the difference is statistically and economically significant.
https://doi.org/10.20955/wp.2005.073
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Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2006
Number: 2005-073