February 04, 2013

In a nutshell, we argue that the inflection points give rise to a change in the variance covariance matrix of sector returns in an economy. The persistent application of the new policy gives rise to return trends without significantly impacting the variance covariance matrix. This insight allows us to conclude that there will be a consistency of relative performance across the cycle and if once can correctly identify the variance covariance matrix, one may be able to develop an asset allocation strategy that takes advantage of the new environment signaled by the turning point.

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