Journal ArticleDOI
How Can 'Smart Beta' Go Horribly Wrong?
TLDR
In this article, the authors predict a smart beta crash as a consequence of the soaring popularity of factor-tilt strategies, and the reasonable probability of such a crash is shown.Abstract:
Factor returns, net of changes in valuation levels, are much lower than recent performance suggests. Value-add can be structural, and thus reliably repeatable, or situational—a product of rising valuations—likely neither sustainable nor repeatable. Many investors are performance chasers who in pushing prices higher create valuation levels that inflate past performance, reduce potential future performance, and amplify the risk of mean reversion to historical valuation norms. We foresee the reasonable probability of a smart beta crash as a consequence of the soaring popularity of factor-tilt strategies.read more
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Forecasting: theory and practice
Fotios Petropoulos,Daniele Apiletti,Vassilios Assimakopoulos,Mohamed Zied Babai,Devon K. Barrow,Souhaib Ben Taieb,Christoph Bergmeir,Ricardo J. Bessa,Jakub Bijak,John E. Boylan,Jethro Browell,Claudio Carnevale,Jennifer L. Castle,Pasquale Cirillo,Michael P. Clements,Clara Cordeiro,Clara Cordeiro,Fernando Luiz Cyrino Oliveira,Shari De Baets,Alexander Dokumentov,Joanne Ellison,Piotr Fiszeder,Philip Hans Franses,David T. Frazier,Michael Gilliland,M. Sinan Gönül,Paul Goodwin,Luigi Grossi,Yael Grushka-Cockayne,Mariangela Guidolin,Massimo Guidolin,Ulrich Gunter,Xiaojia Guo,Renato Guseo,Nigel Harvey,David F. Hendry,Ross Hollyman,Tim Januschowski,Jooyoung Jeon,Victor Richmond R. Jose,Yanfei Kang,Anne B. Koehler,Stephan Kolassa,Nikolaos Kourentzes,Nikolaos Kourentzes,Sonia Leva,Feng Li,Konstantia Litsiou,Spyros Makridakis,Gael M. Martin,Andrew B. Martinez,Andrew B. Martinez,Sheik Meeran,Theodore Modis,Konstantinos Nikolopoulos,Dilek Önkal,Alessia Paccagnini,Alessia Paccagnini,Anastasios Panagiotelis,Ioannis P. Panapakidis,Jose M. Pavía,Manuela Pedio,Manuela Pedio,Diego J. Pedregal,Pierre Pinson,Patrícia Ramos,David E. Rapach,J. James Reade,Bahman Rostami-Tabar,Michał Rubaszek,Georgios Sermpinis,Han Lin Shang,Evangelos Spiliotis,Aris A. Syntetos,Priyanga Dilini Talagala,Thiyanga S. Talagala,Len Tashman,Dimitrios D. Thomakos,Thordis L. Thorarinsdottir,Ezio Todini,Juan Ramón Trapero Arenas,Xiaoqian Wang,Robert L. Winkler,Alisa Yusupova,Florian Ziel +84 more
TL;DR: A non-systematic review of the theory and the practice of forecasting, offering a wide range of theoretical, state-of-the-art models, methods, principles, and approaches to prepare, produce, organise, and evaluate forecasts.
Journal ArticleDOI
Factor-Based Investing: The Long-Term Evidence
TL;DR: In this article, the authors estimate the risk premiums earned from factor investing over very long periods (up to 117 years) and across many markets ( up to 23) and report on the long-term profitability of following strategies based on market capitalization, value versus growth, dividend yield, stock-return momentum, and low-volatility investing.
Journal ArticleDOI
The Siren Song of Factor Timing
TL;DR: In this paper, the authors argue that factor timing has the potential of reintroducing a type of skill-based "active management" (as timing is generally thought of this way) back into the equation.
Journal ArticleDOI
Factor Timing with Cross-Sectional and Time-Series Predictors
TL;DR: In this article, the authors search for predictors of value, size, momentum, quality, and minimum-volatility smart beta factors under different economic regimes and market conditions, and find that combining information from several predictors such as business cycle indicators, valuation, relative strength, and dispersion metrics is more effective than using individual predictors.
Journal ArticleDOI
INVITED EDITORIAL COMMENT: The Siren Song of Factor Timing aka “Smart Beta Timing” aka “Style Timing”
TL;DR: Asness and Asness as discussed by the authors proposed a set of factors that both explain security returns and deliver a positive return premium (not necessarily the same things), and the spread between the factors is defined as the difference between the two factors.
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Posted Content
The Value Spread
TL;DR: The authors decompose the cross-sectional variance of firms' book-to-market ratios using both a long U.S. panel and a shorter international panel and show that the expected return on value-minus-growth strategies is atypically high at times when the value spread (the difference between the book to market ratio of a typical value stock and a typical growth stock) is wide.
Journal ArticleDOI
Reflections on the Efficient Market Hypothesis: 30 Years Later
TL;DR: This paper showed that professional investment managers, both in The U.S. and abroad, do not outperform their index benchmarks and provided evidence that by and large market prices do seem to reflect all available information.
Journal ArticleDOI
Style Timing: Value versus Growth
TL;DR: In this article, the authors take a different approach considering two simple factors: (1) the spread in valuation multiples between a value portfolio and a growth portfolio (the value spread), and (2) the expected earnings growth between a growth strategy and a value strategy (the earnings growth spread).
Journal ArticleDOI
The Death of the Risk Premium
Robert D. Arnott,Ronald J. Ryan +1 more
TL;DR: In this article, the authors argue that most of the institutional investing community is expecting far higher returns than are realistic from current market levels, and they find that it is remarkably difficult to make a case for a positive equity risk premium (the premium of future stock market returns relative to bond yields).
Journal ArticleDOI
Passive Hedge Fund Replication – Beyond the Linear Case
TL;DR: In this paper, the authors extend Hasanhodzic and Lo (2007) by assessing the out-of-sample performance of various non-linear and conditional hedge fund replication models and find that going beyond the linear case does not necessarily enhance the replication power.