Factor investing: alpha concentration versus diversification
| Autor: | Antoniya Shivarova, Lars Heinrich, Martin Zurek |
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| Rok vydání: | 2021 |
| Předmět: |
010407 polymers
050208 finance Information Systems and Management business.industry Investment strategy Strategy and Management education 05 social sciences Diversification (finance) Alpha (ethology) Estimator Covariance Covariance estimator 01 natural sciences 0104 chemical sciences 0502 economics and business Econometrics Economics Business and International Management business Information coefficient Risk management |
| Zdroj: | Journal of Asset Management. 22:464-487 |
| ISSN: | 1479-179X 1470-8272 |
| DOI: | 10.1057/s41260-021-00226-0 |
| Popis: | Despite extensive research support, the role of diversification in current factor investing strategies remains neglected. This paper investigates whether well-designed multifactor portfolios should not only be based on firm characteristics, but should also include portfolio diversification effects. While the alpha concentration approach mainly considers factor-specific firm characteristics, the diversified approach utilizes covariance estimators in addition to firm characteristics to account for portfolio diversification. The corresponding out-of-sample results show that including an efficient covariance estimator improves the performance of long-only multifactor portfolios compared to the pure alpha concentration approach. A particular advantage of diversified factor investing strategies can be identified in the significant increase in exposure to the low-volatility factor represented by firm characteristics with high informational content. No significant performance differences are observed for long-short portfolios where the factor exposures of the alpha concentration and diversification approaches are similar with respect to the low-volatility factor. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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