Not logged in.

Quick Search - Contribution

Contribution Details

Type Master's Thesis
Scope Discipline-based scholarship
Title The volatility index and style rotation: Evidence from the Swiss stock market and VSMI
Organization Unit
Authors
  • Raffael Schmid
Supervisors
  • Runjie Geng
  • Felix Kübler
Language
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Date 2020
Abstract Text This thesis investigates the market timing ability of the VSMI with two di↵erent strategies for the Swiss market using data from July 2011 until June 2019. The first strategy is based on size and di↵ering between small and big stock portfolios, whereas the second strategy consists of alternating between value and growth stock portfolios and therefore is constructed on the style of the stocks. For both strategies, the portfolios are for robustness formed in two ways according to Fama and French (1993), with the first setting being a 2-by-3 approach and the second a 5-by-5 approach. The empirical results of this thesis then suggest a profitable strategy based on size, where the big stocks outperform the small stocks on days following an increase in the VSMI. This superiority is especially profitable on days following a particularly high increase in the VSMI of over 30% and results in a significant payo↵ when implementing a zerocost portfolio. Overall the strategy based on size clearly outperforms the market portfolio. The reasoning for this is that the VSMI is a valid timing instrument for size investing and indicates a ”flight to quality” and ”flight to liquidity” movement. On the other hand, the empirical results show that the style investing strategy reacting to changes in the VSMI is not equally profitable and delivers mixed results that are not significant. According to the results, the value stocks outperform the growth stocks on days following minor positive increases in the VSMI, but on days following huge increases, the opposite is the case. This observation might be due to the popularity of style investing and the fact that these portfolios react faster to changes in the VSMI, and therefore, the VSMI loses its timing ability.
Export BibTeX