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Modeling Style Rotation: Switching and Re-switching

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  • Golosov Edward

    (Department of Economics, Mathematics and Statistics, Birkbeck College, University of London, Malet Street, London WC1E7HX, UK)

  • Satchell Stephen

Abstract

The purpose of this paper is to investigate the dynamics and statistics of style rotation based on the Barberis–Shleifer model of style switching. Investors in stocks regard the forecasting of style-relative performance, especially style rotation, as highly desirable but difficult to achieve in practice. Whilst we do not claim to be able to do this in an empirical sense, we do provide a theoretical framework for addressing these issues. We develop some new results from the Barberis–Shleifer model which allows us to understand some of the time series properties of styles’ relative performance and determine the statistical properties of the time until a switch between styles. In conclusion, we discuss potential applications of our findings to empirical data.

Suggested Citation

  • Golosov Edward & Satchell Stephen, 2014. "Modeling Style Rotation: Switching and Re-switching," Journal of Time Series Econometrics, De Gruyter, vol. 6(2), pages 1-26, July.
    • Handle: RePEc:bpj:jtsmet:v:6:y:2014:i:2:p:26:n:2
    DOI: 10.1515/jtse-2012-0028
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    References listed on IDEAS

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    1. Angela J Black & Bin Mao & David G McMillan, 2009. "The value premium and economic activity: Long-run evidence from the United States," Journal of Asset Management, Palgrave Macmillan, vol. 10(5), pages 305-317, December.
    2. Edward Golosov & S.E. Satchell, 2012. "Modeling Style Rotation: Switching and Re-Switching," Birkbeck Working Papers in Economics and Finance 1203, Birkbeck, Department of Economics, Mathematics & Statistics.
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