Conditional style rotation model on enhanced value and growth portfolios: The European experience

Ron Bird and Lorenzo Casavecchia

Journal of Asset Management, 2011, vol. 11, issue 6, No 3, 375-390

Abstract: Abstract This article analyses the extent of the excess returns that can be generated within the European markets by rotating one's portfolio between value and growth stocks. Academic and professional attention has been devoted in the past to the analysis of the potential value-enhancement generated by rotation strategies based on macroeconomic models and applied to value and growth portfolios and/or indexes. We demonstrate that such models can be employed successfully to rotate between value and growth portfolios that are formed using traditional valuation metrics. However, we find that the value-enhancing potential of such rotation strategies is eroded when the value and growth portfolios are themselves enhanced using market sentiment and financial health indicators.

Keywords: style rotation; valuation metrics; financial health; market sentiment; asset pricing anomalies (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1057/jam.2009.34

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