To be considered relevant, a factor must first and foremost be backed by ample empirical evidence. In the absence of such evidence, academic research on multi-asset factor premiums could suffer from ‘p-hacking’ (or ‘data mining’). Recent research uses new and previously unused deep historical financial data. The results allay any p-hacking concerns.
When assessing the evidence on potentially interesting factors, it is of utmost importance for researchers to take the possibility of ‘p-hacking’ into account. P-hacking means that researchers examine thousands of different investment strategies, but only report those that show the best historical performance. The discovery of new historical financial data is important to alleviate these p-hacking concerns. The quest for such historical evidence on factor premiums was actually what recently led Guido Baltussen, Laurens Swinkels and Pim van Vliet to analyze more than two centuries of international market data from multiple historical sources, relating to an array of asset classes.
The three authors looked at six major factor premiums in equity indices, government bonds, currencies, and commodities, using data going back to 1800. Such an extensive sample allowed them to falsify certain factors, to check if previous results were simply driven by ‘p-hacking’. A data set spanning such a long period of time covers the various stages of the business cycle and economic crashes, which makes it possible to study the sensitivity of factor premiums to financial market and macroeconomic conditions.
The authors found significant, persistent, and robust momentum, value, seasonal and carry premiums within four asset classes. They document the presence of a low-risk effect in equity markets, but not in other markets, which is consistent with the typical explanations given for the low-risk effect. They also found that the momentum, value, seasonal, and carry factor premiums generally work well with each other in the context of portfolio diversification. The authors also show that the time-series trend and cross-sectional momentum are in essence similar factors. Further, they argue that multi-asset factor strategies give rise to statistically highly significant Sharpe ratios in the range of 0.5-1.2, delivering positive returns in almost all 10-year periods since 1800.
The factor premiums remain robust across economic stages
The factor premiums remain robust across economic stages, such as bull and bear markets, recessions and expansions, and periods of crisis and of growth and prosperity. They also investigate downside crash risk as a possible explanation for these factor premiums but find virtually no evidence for this.
Overall, the authors present convincing empirical evidence that most factor premiums are present in all major asset classes, are economically robust, and persist over time. They are highly unlikely to be the result of data mining, supporting the assumption that they will continue to exist in the future.
Read the related research paper, ‘Global Factor Premiums’, on SSRN.
The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.
The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.
Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is ACOLIN Fund Services AG, Affolternstrasse 56, 8050 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/RobecoSAM AG product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/RobecoSAM AG offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.
This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.