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Tactical Asset Allocation Using Investors' Sentiment

Author

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  • KIM, SOO-HYUN
  • KANG, HYOUNG-GOO

Abstract

We extend investor sentiment literature and apply it to tactical portfolio allocation in the Korean stock market. We first construct a Korean investors' sentiment index by considering prior literature and expert opinions. Second, we investigate whether the index can predict both time series and cross sectional variations of stock returns. Third, we attempt tactical asset allocation using the index. Our sentiment index predicts both time series and cross sectional variations of stock returns. In addition, the tactical asset allocation generates significant excess return after adjusting risks and transaction costs.

Suggested Citation

  • Kim, Soo-Hyun & Kang, Hyoung-Goo, 2015. "Tactical Asset Allocation Using Investors' Sentiment," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 56(2), pages 177-195, December.
    • Handle: RePEc:hit:hitjec:v:56:y:2015:i:2:p:177-195
    DOI: 10.15057/27601
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    investor sentiment; tactical asset allocation; Korean stock market; alpha;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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