Potential gains from sector timing on the JSE

Abstract

This study investigates the effectiveness of sector timing on the JSE by evaluating the likely outcomes from switching between the resource and financial-industrial indices using Monte Carlo simulations over the period from 31 January 2002 to 31 December 2016. A market timer is assumed to have varying forecasting accuracies when switching between the sector indices on the JSE. This study is motivated by the market segmentation phenomenon on the JSE (i.e. resources can be viewed as a separate market driven by different economic forces compared to other sectors); and argues that there exists "potential gains" for sector rotation strategies rather than a buy and hold strategy in the All Share Index (ALSI).