Market timing with aggregate and idiosyncratic stock volatilities
Hui Guo () and
No 2005-073, Working Papers from Federal Reserve Bank of St. Louis
Guo and Savickas  show that aggregate stock market volatility and average idiosyncratic stock volatility jointly forecast stock returns. In this paper, we quantify the economic significance of their results from the perspective of a portfolio manager. That is, we evaluate the performance, e.g., the Sharpe ratio and Jensen's alpha, of a mean-variance manager who tries to time the market based on those two variables. We find that, over the period 1968-2004, the associated market-timing strategy outperforms the buy-and-hold strategy, and the difference is statistically and economically significant.
Keywords: Stock; exchanges (search for similar items in EconPapers)
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