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The cross-section of industry equity returns and global tactical asset allocation across regions and industries

Umutlu, Mehmet; Bengitöz, Pelin

Authors

Pelin Bengitöz



Abstract

This study investigates which index characteristics predict returns in the cross-section of local industry indexes in six regions. The results show that geographical origin and market capitalization of indexes critically determine the predictive ability of characteristics. We find that industry indexes of any market capitalization with high earnings-to-price ratio yield higher expected returns in the US, Europe, and Asia-Pacific. Recent winner (loser) portfolios in Europe have a tendency to outperform (underperform) recent loser (winner) portfolios in the near future for all groups of market capitalization. Small portfolios with high idiosyncratic volatility in Asia-Pacific earn an idiosyncratic volatility premium. Dividend yield is positively related to future returns of small European portfolios. These results are robust to the inclusion of transaction costs and control variables and have implications for portfolio managers following a global tactical asset allocation policy.

Journal Article Type Article
Acceptance Date Jul 21, 2020
Online Publication Date Sep 9, 2020
Publication Date 2020-11
Deposit Date Jan 29, 2023
Journal International Review of Financial Analysis
Print ISSN 1057-5219
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 72
Article Number 101574
DOI https://doi.org/10.1016/j.irfa.2020.101574