PT - JOURNAL ARTICLE AU - Maggie Copeland AU - Michael Copeland AU - Thomas Copeland TI - Industry Rotation and Time-Varying Sensitivity by VIX AID - 10.3905/jpm.2018.44.6.089 DP - 2018 Jun 30 TA - The Journal of Portfolio Management PG - 89--97 VI - 44 IP - 6 4099 - https://pm-research.com/content/44/6/89.short 4100 - https://pm-research.com/content/44/6/89.full AB - In this article, the authors, one of whom was a doctoral student of Stephen A. Ross, investigate the cross section of industry returns and the effect of uncertainty as proxied by the VIX index. They find that different moments of the distribution of cross-sectional returns for industries are significantly correlated to both the change in VIX and the level of VIX. Furthermore, the size effect diminishes after controlling for the industry effect. The sensitivity to the change in VIX is time varying. Different VIX regimes and different events can alter industry sensitivities. Non-stationarity of the sensitivity may also introduce complexity on factor or smart beta strategies, which tilt toward a favorable risk premium factor. Finally, the authors propose a general approach for industry rotation.TOPICS: Analysis of individual factors/risk premia, quantitative methods