This paper provides the following three novel findings to the literature. First, the effects of the corporate governance ratings on stock returns are inconstant, non-liner, and time-varying over the long-run. Second, by taking advantage of the time-varying characteristics of expected returns from the quality of corporate governance, an optimal investment strategy with adaptation of Markov switching model is developed. Third, incorporation of style switching strategy with value premium in recessions and momentum premium in expansions improves ...