Sector Rotation by Factor Model and Fundamental Analysis

ArXiv ID: 2401.00001 “View on arXiv”

Authors: Unknown

Abstract

This study presents an analytical approach to sector rotation, leveraging both factor models and fundamental metrics. We initiate with a systematic classification of sectors, followed by an empirical investigation into their returns. Through factor analysis, the paper underscores the significance of momentum and short-term reversion in dictating sectoral shifts. A subsequent in-depth fundamental analysis evaluates metrics such as PE, PB, EV-to-EBITDA, Dividend Yield, among others. Our primary contribution lies in developing a predictive framework based on these fundamental indicators. The constructed models, post rigorous training, exhibit noteworthy predictive capabilities. The findings furnish a nuanced understanding of sector rotation strategies, with implications for asset management and portfolio construction in the financial domain.

Keywords: Sector Rotation, Factor Models, Fundamental Analysis, Predictive Modeling, Asset Management, Equities

Complexity vs Empirical Score

• Math Complexity: 4.0/10
• Empirical Rigor: 6.5/10
• Quadrant: Street Traders
• Why: The paper applies standard factor models and basic statistical metrics, showing moderate empirical rigor with backtested returns and Sharpe ratios, but uses low-level math without complex derivations.

  flowchart TD
    A["Research Goal<br>Develop Predictive Framework<br>for Sector Rotation"] --> B["Data Collection & Classification<br>Sector Returns & Fundamental Metrics"]
    B --> C["Factor Model Analysis<br>Momentum & Short-term Reversion"]
    B --> D["Fundamental Analysis<br>PE, PB, EV/EBITDA, Div Yield"]
    C & D --> E["Computational Process<br>Model Construction & Rigorous Training"]
    E --> F["Key Outcome<br>High Predictive Capability<br>Asset Management Strategy"]