Navigating the factor zoo around the world: an institutional investor perspective

Journal of Business Economics - Tập 91 - Trang 655-703 - 2021
Söhnke M. Bartram1,2, Harald Lohre3,4,5, Peter F. Pope6, Ananthalakshmi Ranganathan3,5
1Centre for Economic Policy Research (CEPR), London, UK
2Warwick Business School, Finance Group, University of Warwick, Coventry, UK
3Invesco Quantitative Strategies, Frankfurt am Main, Germany
4Centre for Endowment Asset Management (CEAM) at Cambridge Judge Business School, University of Cambridge, Cambridge, UK
5Centre for Financial Econometrics, Asset Markets and Macroeconomic Policy (EMP), Lancaster University Management School, Lancaster, UK
6Department of Accounting, Bocconi University, Milano, Italy

Tóm tắt

The literature on cross-sectional stock return predictability has documented over 450 factors. We take the perspective of an institutional investor and navigate this zoo of factors by focusing on the evidence relevant to the practicalities of factor-based investment strategies. Establishing a sound theoretical rationale is key to identifying “true” factors, and we emphasize the need to recognize data-mining concerns that may cast doubt on the relevance of many factors. From a practical investment perspective, much of the factor evidence documented by academics may be more apparent than real. The performance of many factors is dependent on the inclusion of small- and micro-cap stocks in academic studies, although such stocks would likely be excluded from the real investment universe due to illiquidity and transaction costs. Nevertheless, a parsimonious set of factors emerges in equities and other asset classes, including currencies, fixed income, and commodities. These factors can serve as meaningful ingredients to factor-based portfolio construction.

Tài liệu tham khảo

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