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Factor Timing with Portfolio Characteristics

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Published
<mark>Journal publication date</mark>31/03/2024
<mark>Journal</mark>Review of Asset Pricing Studies
Issue number1
Volume14
Number of pages35
Pages (from-to)84-118
Publication StatusPublished
Early online date6/06/23
<mark>Original language</mark>English

Abstract

In a factor timing context, academic research has focused on identifying a set of predictors that can explain the dynamics of factor portfolios. We propose an alternative approach for timing factor portfolio returns by exploiting the information from their portfolio characteristics. Different combinations of dimension reduction techniques are employed to independently reduce the number of both predictors and portfolios to predict. Characteristic-based models outperform existing methods in terms of exact predictability, as well as investment performance.