Abstract

Anomaly-based long/short benchmarks are typically built from portfolios double-sorted on size and one additional characteristic, applying simple fixed-weights schemes. Characteristic-based portfolios show significant time variations of their abnormal returns (alphas) and market exposures (betas). While timing alphas is challenging, a long-term risk-averse investor benefits from implementing dynamic weighting schemes that account for the time variation of the betas of the portfolios. Particularly for long investment horizons, significant out-of-sample Sharpe ratio improvements and utility gains with respect to fixed-weights factor benchmarks are recorded using portfolios sorted on size, value, operating profitability, investment and momentum.
Lingua originaleEnglish
pagine (da-a)N/A-N/A
RivistaJOURNAL OF ECONOMIC DYNAMICS & CONTROL
Volume117
DOI
Stato di pubblicazionePubblicato - 2020

Keywords

  • Dynamic asset allocation
  • Factor investing
  • Market anomalies
  • Portfolio choice
  • Return predictability
  • Stochastic volatility

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