Country Rotation With Thomson Reuters/IPSOS Primary Consumer Sentiment Index

The Thomson Reuters/Ipsos Primary Consumer Sentiment Index (PCSI) is a comprehensive data set which measures current and forward looking consumer feelings towards a wide range of economic conditions across 24 countries.  In this research note, we examine one possible application of the PCSI.  Specifically, we constructed simple signals from the individual components and tested these signals in country rotation strategies with one and six month rebalance periods. Our best performing tests produced annualized long-only returns over 15%, long-short spread returns near 10%, and demonstrate one way PCSI can add value to any top down analysis.

In this Research Note, we explore some simple ideas as to how one can use the PCSI data to inform a top down investment approach.  For our study, we constructed signals from both the aggregated responses to the underlying survey questions and one month changes thereof. We then tested these level and change signals to see how each performed in a country rotation framework.  This note intends to provide only a basic starting point from which to analyze how the PCSI can be used in investment decisions. Not only do our findings show value in PCSI for top down country selection, but also point to several further areas of potential research.

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