netherlandsnl
The siren song of factor timing

The siren song of factor timing

26-04-2017 | From the field

Timing when to enter and exit factors seems to be the holy grail of quant investing. But while the academic literature contains a huge amount of evidence that each factors delivers a significant premium over the long run, data substantiating the benefits of factor timing are conspicuous by their absence.

  • David Blitz
    David
    Blitz
    Head of Quant Research

However, openly admitting that there is very little empirical basis for attempting to successfully time factors such as value, momentum, low volatility and quality can backfire for an asset manager as it may be perceived as a lack of skill, especially since some companies claim to be able to do so successfully.

In this short paper* the author argues that investors should not expect much reward from factor timing, and that companies often overstate their ability to time factors in order to justify higher management fees. We applaud him for sticking his neck out in this manner and for the main part agree with his reasoning.

*Asness, “The Siren Song of Factor Timing aka Style Timing”, Journal of Portfolio Management, Vol. 42, No. 5, 2016, pp.1-6.

Blijf op de hoogte van kwantitatieve inzichten
Blijf op de hoogte van kwantitatieve inzichten
Aanmelden
From the field
From the field

Onze onderzoekers publiceren veel whitepapers die zijn gebaseerd op hun eigen empirische onderzoek, maar ze kijken ook naar kwantitatief onderzoek dat door anderen is gedaan. David Blitz, hoofd Quant Equities Research, vertelt over opvallende externe papers.

Lees alle artikelen