Timing the Relative Performance of Small-Cap and Large-Cap Stocks
Over time, small capitalization stocks have been shown to outperform large-capitalization stocks. However, timing changes in the relative performance between the two groups could lead to still-better performance. In the Fall 2007 Journal of Portfolio Management, L’Her, Mouakhar and Roberge test three nonparametric techniques derived from artificial intelligence and using 20 macroeconomic and financial variables as inputs.
The three approaches are recursive partitioning, a neural network and a genetic algorithm.
Each of the three techniques outperforms a naive small-minus-big strategy, but the best results are derived from taking the consensus of the three techniques.
For more information, see all articles on: Active Management, Asset Allocation, Economic Analysis, Institutional Investing, Investing in Stocks, Investment Returns, Momentum Strategies, Portfolio Management, Research, Risk Management See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
