Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Optimal Timing and Tilting of Equity Factors
AU - Dichtl, Hubert
AU - Drobetz, Wolfgang
AU - Lohre, Harald
AU - Rother, Carsten
AU - Vosskamp, Patrick
PY - 2019/10/2
Y1 - 2019/10/2
N2 - Aiming to optimally harvest global equity factor premiums, we investigated the benefits of parametric portfolio policies for timing factors conditioned on time-series predictors and tilting factors based on cross-sectional factor characteristics. We discovered that equity factors are predictably related to fundamental and technical time-series indicators and to such characteristics as factor momentum and crowding. We found that such predictability is hard to benefit from after transaction costs. Advancing the timing and tilting policies to smooth factor allocation turnover slightly improved the evidence for factor timing but not for factor tilting, which renders our analysis a cautionary tale on dynamic factor allocation. Disclosure: Two of the authors are at Invesco, one is at Allianz Global Investors. The authors follow an evidence-based investment process, including multi-factor equity propositions. Therefore, Invesco and Allianz Global Investors have a commercial interest in the subject matter (optimal equity factor allocation).
AB - Aiming to optimally harvest global equity factor premiums, we investigated the benefits of parametric portfolio policies for timing factors conditioned on time-series predictors and tilting factors based on cross-sectional factor characteristics. We discovered that equity factors are predictably related to fundamental and technical time-series indicators and to such characteristics as factor momentum and crowding. We found that such predictability is hard to benefit from after transaction costs. Advancing the timing and tilting policies to smooth factor allocation turnover slightly improved the evidence for factor timing but not for factor tilting, which renders our analysis a cautionary tale on dynamic factor allocation. Disclosure: Two of the authors are at Invesco, one is at Allianz Global Investors. The authors follow an evidence-based investment process, including multi-factor equity propositions. Therefore, Invesco and Allianz Global Investors have a commercial interest in the subject matter (optimal equity factor allocation).
U2 - 10.1080/0015198X.2019.1645478
DO - 10.1080/0015198X.2019.1645478
M3 - Journal article
AN - SCOPUS:85074894006
VL - 75
SP - 84
EP - 102
JO - Financial Analysts Journal
JF - Financial Analysts Journal
SN - 0015-198X
IS - 4
ER -