INDUSTRY ROTATION IN THE UNITED-STATES STOCK-MARKET - 1934-1986 RETURNS ON PASSIVE, SEMIPASSIVE, AND ACTIVE STRATEGIES

This paper compares the returns to three distinct sets of approaches to industry rotation in the U.S. stock market: passive, semi-passive, and active. Using the 12-industry breakdown of Breeden, Gibbons, and Litzenberger (1989), the passive strategies are based on the up- and down-levered value-weighted industry indices and the semi-passive strategies are similarly constructed from the equal-weighted industry indices. The active strategies are based on multiperiod investment theory and the empirical probability assessment approach applied to past realized returns. The semi-passive and active strategies performed well in both the full 1934-1986 period and in the 1966-1986 subperiod, achieving statistically significant excess returns in several instances. © 1990.