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Sector Rotation by Factor Model and Fundamental Analysis

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arxiv 2401.00001 v1 pith:6QCFJNPV submitted 2023-11-18 q-fin.PM

classification q-fin.PM
keywords fundamentalanalysisfactorrotationsectormetricsmodelspredictive
verification ladder T0 review T1 audit T2 compute T3 formal
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This study presents an analytical approach to sector rotation, leveraging both factor models and fundamental metrics. We initiate with a systematic classification of sectors, followed by an empirical investigation into their returns. Through factor analysis, the paper underscores the significance of momentum and short-term reversion in dictating sectoral shifts. A subsequent in-depth fundamental analysis evaluates metrics such as PE, PB, EV-to-EBITDA, Dividend Yield, among others. Our primary contribution lies in developing a predictive framework based on these fundamental indicators. The constructed models, post rigorous training, exhibit noteworthy predictive capabilities. The findings furnish a nuanced understanding of sector rotation strategies, with implications for asset management and portfolio construction in the financial domain.

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Cited by 5 Pith papers

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