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Factor Timing Revisited

The question of timing alternative risk premia or factors is the subject of intense debate among investors and in academic literature. In this article, we investigate the question of dynamic allocation across a diversified range of cross-asset alternative risk premia over the period 1990-2019. For this, we design an active (macro risk-based) allocation framework that notably aims to exploit alternative risk premia’s varying behaviour in different macro regimes through nowcasters and their valuations over time and in the cross-section. We perform backtests of the allocation strategy in an out-of-sample setting, shedding light on the significance of both sources of information.

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