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

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  • Umutlu, Mehmet
  • Bengitöz, Pelin

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.

Suggested Citation

  • Umutlu, Mehmet & Bengitöz, Pelin, 2020. "The cross-section of industry equity returns and global tactical asset allocation across regions and industries," International Review of Financial Analysis, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:finana:v:72:y:2020:i:c:s1057521920302180
    DOI: 10.1016/j.irfa.2020.101574
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    9. Pelin Bengitöz & Mehmet Umutlu, 2023. "Are return predictors of industrial equity indexes common across regions?," Journal of Asset Management, Palgrave Macmillan, vol. 24(5), pages 396-418, September.
    10. Yusuf Olatunji Oyedeko & Olusola Segun Kolawole & Regina Samson & Olena Voloshyna, 2023. "Moderating Effect of Tactical Asset Allocation on the Risk-Return Relationship in the Nigerian Stock Market," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 83-91, June.

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    More about this item

    Keywords

    International portfolio management; International diversification; Global tactical asset allocation; International asset pricing;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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