Modeling Style Rotation: Switching and Re-switching

摘要

The purpose of this paper is to investigate the dynamics and statistics of style rotation based on the Barberis–Shleifer model of style switching. Investors in stocks regard the forecasting of style-relative performance, especially style rotation, as highly desirable but difficult to achieve in practice. Whilst we do not claim to be able to do this in an empirical sense, we do provide a theoretical framework for addressing these issues. We develop some new results from the Barberis–Shleifer model which allows us to understand some of the time series properties of styles' relative performance and determine the statistical properties of the time until a switch between styles. In conclusion, we discuss potential applications of our findings to empirical data.