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Factor Timing / Valentin Haddad, Serhiy Kozak, Shrihari Santosh.
- Format:
- Book
- Author/Creator:
- Haddad, Valentin.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w26708.
- NBER working paper series no. w26708
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2020.
- Summary:
- The optimal factor timing portfolio is equivalent to the stochastic discount factor. We propose and implement a method to characterize both empirically. Our approach imposes restrictions on the dynamics of expected returns which lead to an economically plausible SDF. Market-neutral equity factors are strongly and robustly predictable. Exploiting this predictability leads to substantial improvement in portfolio performance relative to static factor investing. The variance of the corresponding SDF is larger, more variable over time, and exhibits different cyclical behavior than estimates ignoring this fact. These results pose new challenges for theories that aim to match the cross-section of stock returns.
- Notes:
- Print version record
- January 2020.
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