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Factor investing and asset allocation strategies: a comparison of factor versus sector optimization

Bessler, Wolfgang ; Taushanov, Georgi ; Wolff, Dominik (2024)
Factor investing and asset allocation strategies: a comparison of factor versus sector optimization.
In: Journal of Asset Management, 2021, 22 (6)
doi: 10.26083/tuprints-00023570
Artikel, Zweitveröffentlichung, Verlagsversion

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Kurzbeschreibung (Abstract)

Given the tremendous growth of factor allocation strategies in active and passive fund management, we investigate whether factor or sector asset allocation strategies provide investors with a superior performance. Our focus is on comparing factor versus sector allocations as some recent empirical evidence indicates the dominance of sector over country portfolios. We analyze the performance and performance differences of sector and factor portfolios for various weighting and portfolio optimization approaches, including “equal-weighting” (1/N), “risk parity,” minimum-variance, mean-variance, Bayes–Stein and Black–Litterman. We employ a sample-based approach in which the sample moments are the input parameters for the allocation model. For the period from May 2007 to November 2020, our results clearly reveal that, over longer investment horizons, factor portfolios provide relative superior performances. For shorter periods, however, we observe time-varying and alternating performance dominances as the relative advantage of one over the other strategy depends on the economic cycle. One important insight is that during “normal” times factor portfolios clearly dominate sector portfolios, whereas during crisis periods sector portfolios are superior offering better diversification opportunities.

Typ des Eintrags: Artikel
Erschienen: 2024
Autor(en): Bessler, Wolfgang ; Taushanov, Georgi ; Wolff, Dominik
Art des Eintrags: Zweitveröffentlichung
Titel: Factor investing and asset allocation strategies: a comparison of factor versus sector optimization
Sprache: Englisch
Publikationsjahr: 24 September 2024
Ort: Darmstadt
Publikationsdatum der Erstveröffentlichung: Oktober 2021
Ort der Erstveröffentlichung: London
Verlag: Palgrave Macmillan
Titel der Zeitschrift, Zeitung oder Schriftenreihe: Journal of Asset Management
Jahrgang/Volume einer Zeitschrift: 22
(Heft-)Nummer: 6
DOI: 10.26083/tuprints-00023570
URL / URN: https://tuprints.ulb.tu-darmstadt.de/23570
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Herkunft: Zweitveröffentlichung DeepGreen
Kurzbeschreibung (Abstract):

Given the tremendous growth of factor allocation strategies in active and passive fund management, we investigate whether factor or sector asset allocation strategies provide investors with a superior performance. Our focus is on comparing factor versus sector allocations as some recent empirical evidence indicates the dominance of sector over country portfolios. We analyze the performance and performance differences of sector and factor portfolios for various weighting and portfolio optimization approaches, including “equal-weighting” (1/N), “risk parity,” minimum-variance, mean-variance, Bayes–Stein and Black–Litterman. We employ a sample-based approach in which the sample moments are the input parameters for the allocation model. For the period from May 2007 to November 2020, our results clearly reveal that, over longer investment horizons, factor portfolios provide relative superior performances. For shorter periods, however, we observe time-varying and alternating performance dominances as the relative advantage of one over the other strategy depends on the economic cycle. One important insight is that during “normal” times factor portfolios clearly dominate sector portfolios, whereas during crisis periods sector portfolios are superior offering better diversification opportunities.

Freie Schlagworte: Asset allocation, Portfolio optimization, Factor investing, Factor versus sector allocation
Status: Verlagsversion
URN: urn:nbn:de:tuda-tuprints-235705
Zusätzliche Informationen:

Issue: Multiple alpha sources and portfolio design

Palgrave is part of Springer Nature

JEL Classifcation G17 · G11 · C53

Sachgruppe der Dewey Dezimalklassifikatin (DDC): 300 Sozialwissenschaften > 330 Wirtschaft
Fachbereich(e)/-gebiet(e): 01 Fachbereich Rechts- und Wirtschaftswissenschaften
01 Fachbereich Rechts- und Wirtschaftswissenschaften > Betriebswirtschaftliche Fachgebiete
01 Fachbereich Rechts- und Wirtschaftswissenschaften > Betriebswirtschaftliche Fachgebiete > Fachgebiet Unternehmensfinanzierung
Hinterlegungsdatum: 24 Sep 2024 11:42
Letzte Änderung: 01 Okt 2024 08:56
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