A comparison of non-parametric and parametric style timing strategies

Several brokers believe that style timing strategies based on macro-economic indicator series could yield better returns. I test three of these broker models to see if their rule based style timing methods pay off on the European market. Furthermore, I construct my own style timing model based on a Markov switching vector autoregressive model. The models are tested on ten different styles consisting of European stocks. I find that some styles perform better when being timed and that a simple rule based model yields higher returns for the period 2001-2016 than a more complex parametric model. The MS-VAR model has identification problems due to lack of recession data and the added value of the Markov switching property of the model parameters is minimal.