Testing Use of the RORO Index to Time SPY and TLT

“Daily Global Investor Sentiment” discusses the risk-on/risk-off (RORO) index as a measure of global investor risk appetite, with the underlying dataset publicly available. Can investors exploit this dataset for short-term timing of investments in stocks (risk-on) and government bonds (risk-off)? To investigate, we relate future daily returns for SPDR S&P 500 ETF Trust (SPY) and iShares 20+ Year Treasury Bond ETF (TLT) to daily RORO index levels. After rationalizing RORO index measurement days and SPY/TLT trading days, we consider simple lead-lag regressions to measure linear effects. We then compute next-day SPY/TLT returns by ranked tenth (decile) of RORO index levels to assess non-linear effects. Using daily RORO index levels as available (downloaded on 1/29/25) and daily total (dividend-adjusted) returns for SPY and TLT during 5/9/2003 through 1/28/25, we find that: (more…)