Anomaly-based long/short benchmarks are typically built from portfolios double-sorted on size and one additional characteristic, applying simple fixed-weights schemes. Characteristic-based portfolios show significant time variations of their abnormal returns (alphas) and market exposures (betas). While timing alphas is challenging, a long-term risk-averse investor benefits from implementing dynamic weighting schemes that account for the time variation of the betas of the portfolios. Particularly for long investment horizons, significant out-of-sample Sharpe ratio improvements and utility gains with respect to fixed-weights factor benchmarks are recorded using portfolios sorted on size, value, operating profitability, investment and momentum.
Lioui, A., Tarelli, A., Factor investing for the long run, <<JOURNAL OF ECONOMIC DYNAMICS & CONTROL>>, 2020; 117 (August 2020): N/A-N/A. [doi:10.1016/j.jedc.2020.103960] [http://hdl.handle.net/10807/158967]
Factor investing for the long run
Tarelli, AndreaUltimo
2020
Abstract
Anomaly-based long/short benchmarks are typically built from portfolios double-sorted on size and one additional characteristic, applying simple fixed-weights schemes. Characteristic-based portfolios show significant time variations of their abnormal returns (alphas) and market exposures (betas). While timing alphas is challenging, a long-term risk-averse investor benefits from implementing dynamic weighting schemes that account for the time variation of the betas of the portfolios. Particularly for long investment horizons, significant out-of-sample Sharpe ratio improvements and utility gains with respect to fixed-weights factor benchmarks are recorded using portfolios sorted on size, value, operating profitability, investment and momentum.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.