Working Paper

Size and value anomalies under regime shifts

Abstract: This paper finds strong evidence of time-variations in the joint distribution of returns on a stock market portfolio and portfolios tracking size- and value effects. Mean returns, volatilities and correlations between these equity portfolios are found to be driven by underlying regimes that introduce short-run market timing opportunities for investors. The magnitude of the premia on the size and value portfolios and their hedging properties are found to vary significantly across regimes. Regimes are also found to have a large impact on the optimal asset allocation - especially under rebalancing - and on investors' welfare.

Keywords: Assets (Accounting);

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2005

Number: 2005-007