| This thesis investigates the portfolio performance for the sector exchange traded funds with a regime-switching model. The essence of market neutral strategy is to maximize fund's "alpha" while minimizing "beta" associated with various style and macro factors. By solving the optimization problem, the optimal weights for select sector ETFs are obtained in each regime. In contrast to the benchmark strategy, which is the equally weighted buy and hold strategy, the proposed regime-dependent market strategy effectively improves the portfolio performance under the bull market with an explanation power more than 60% in term of excess returns. The results suggest that the regime-dependent market neutral strategy generally outperforms the equally weighted buy and hold strategy. |
