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Sector Rotation by Factor Model and Fundamental Analysis

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  • Runjia Yang
  • Beining Shi

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.

Suggested Citation

  • Runjia Yang & Beining Shi, 2023. "Sector Rotation by Factor Model and Fundamental Analysis," Papers 2401.00001, arXiv.org.
  • Handle: RePEc:arx:papers:2401.00001
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