Optimal Timing and Tilting of Equity Factors

Dichtl, Hubert and Drobetz, Wolfgang and Lohre, Harald and Rother, Carsten and Vosskamp, Patrick (2019) Optimal Timing and Tilting of Equity Factors. Financial Analysts Journal, 75 (4). pp. 84-102. ISSN 0015-198X

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Abstract

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).

Item Type:
Journal Article
Journal or Publication Title:
Financial Analysts Journal
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
160325
Deposited By:
Deposited On:
11 Oct 2021 13:20
Refereed?:
Yes
Published?:
Published
Last Modified:
20 Oct 2021 06:12