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Tactical size rotation in Switzerland

Summary

The size premium, defined as the return differential between shares of small and large companies, is subject to cyclical fluctuations. This study examines the predictability of this premium for the Swiss stock market applying a new and flexible forecasting approach. Our strategies provide promising information ratios. The results show that risk variables (VIX, TED spread, etc.), the performance of the S&P 500 and statistical variables such as AR(1) terms or trends prove to be successful forecasting variables in our algorithm. Furthermore, variables that sum up the consensus estimates of equity analysts (IBES) make valuable forecast contributions.

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Correspondence to Thorsten Hock.

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The author would like to thank the anonymous referees for their valuable comments.

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Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License ( https://creativecommons.org/licenses/by/2.0 ), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Hock, T. Tactical size rotation in Switzerland. Swiss J Economics Statistics 146, 553–576 (2010). https://doi.org/10.1007/BF03399327

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  • DOI: https://doi.org/10.1007/BF03399327

JEL-Classification

  • G11
  • G17

Keywords

  • forecasting
  • size premium
  • Switzerland
  • factor models