The mixed vs the integrated approach to style investing: Much ado about nothing?

Leippold, Markus; Rueegg, Roger

doi:10.1111/eufm.12139

Cited by 19 publications

(10 citation statements)

References 51 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…However, in the performance comparison between the TD and BU approach, factor exposures alone provided no sufficient answer to the dissent in the literature. Because, even without any exposure adjustments Amenc et al (2018) and Leippold and Rueegg (2018) did not find significant performance differences between both approaches.…”

mentioning

confidence: 86%

“…Across the recent literature, there has been no consensus on the superiority of one approach against the other. While Bender and Wang (2016), Clarke et al (2016) as well as Fitzgibbons et al (2017) demonstrated that the BU method leads to better performance results, Chow et al (2018), Leippold and Rueegg (2018) and Amenc et al (2018) reassessed the claim and found no such superiority. In an attempt to balance this discussion, Ghayur et al (2018) emphasized the increased efficiency of the BU approach in gaining a higher exposure to the chosen factors.…”

mentioning

confidence: 93%

See 1 more Smart Citation

Bottom-up versus top-down factor investing: an alpha forecasting perspective

Zurek

Heinrich²

2020

J Asset Manag

View full text Add to dashboard Cite

In a recent discussion about efficient ways to combine multiple firm characteristics into a multifactor portfolio, a distinction was made between the bottom-up and top-down approach. Both approaches integrate characteristics with equal weights and ignore interaction effects from differences in informational content and correlations between the firm characteristics. The authors complement the bottom-up approach for the missing interaction effects by implementing a linear alpha forecasting framework. Bottom-up versus top-down factor investing is typically discussed using the assumption that all characteristics are equally priced, but the pricing impact of different firm characteristics can vary tremendously. The alpha forecasting perspective provides a theoretical motivation for factor investing and helps to compare the bottom-up and top-down approach with regard to the difference of informational content and interaction effects between firm characteristics. Taking into account the difference in informational content between firm characteristics leads to significant performance improvement in factor models with a high concentration of informational content. Equally weighted characteristics result in related performance irrespective of whether the bottom-up or top-down approach is applied.

show abstract

mentioning

confidence: 86%

mentioning

confidence: 93%

Bottom-up versus top-down factor investing: an alpha forecasting perspective

Zurek

Heinrich²

2020

J Asset Manag

View full text Add to dashboard Cite

show abstract

“…our robust statistical test framework. Hence, the long-only integrated approach does not dominate the traditional long-short mixed portfolio construction as it is shown in Leippold and Rüegg (2018). Consequently, the success of our one-month momentum strategy does not rely on the actual risk premium of the underlying traditional long-short factors, and it is a winning strategy when we are uncertain about whether the underlying factor bears a positive premium.…”

Section: Introductionmentioning

confidence: 91%

“…In our setting, however, the 1/N strategy is not applied to stocks, but to factor score weights. Therefore, the naive diversification strategy in this set-up corresponds to the integrated strategies presented and analysed in Bender and Wang (2016) and Leippold and Rüegg (2018).…”

Section: Naive Diversification and Fama-macbeth Strategymentioning

confidence: 99%

Fama–French factor timing: The long‐only integrated approach

Leippold

Rueegg

2020

Euro Fin Management

Self Cite

View full text Add to dashboard Cite

There is ample evidence that factor momentum exists in the standard long-short mixed approach to factor investing. However, the excess returns are put under scrutiny due to the high implementation costs. We present a novel real-life approach that relies on the long-only integrated approach to factor investing. Instead of exploiting the potential momentum in factor portfolios, our strategy builds on the momentum of the optimal factor score weights in the integrated approach, which allows us to additionally profit from the serial dependence in the factors' interaction effects. One limitation of short-term timing strategies is their high turnover. By including the information of the covariance matrix and minimising the strategy's risk to the market portfolio, we can substantially reduce turnover. The resulting timing alpha remains significant even after transaction costs in a robust statistical test framework across the major stock markets.

show abstract

“…Our article speaks to a recent but quickly growing literature on style-integration in equity markets (Brandt et al, 2009;Frazzini et al, 2013;Fischer and Gallmeyer, 2016;Fitzgibbons et al, 2016;Ghysels et al, 2016;Leippold and Rueegg, 2018;DeMiguel et al, 2019), currency markets (Kroencke et al, 2014;Barroso and Santa-Clara, 2015b) and commodity markets (Fuertes et al, 2015). A common denominator to these studies is their focus on one or at most two style-integration approaches.…”

Section: Introductionmentioning

confidence: 93%

A comprehensive appraisal of style-integration methods

Fernández-Pérez

Fuertes²,

Miffre

2019

Journal of Banking & Finance

View full text Add to dashboard Cite

The paper provides a comprehensive appraisal of style-integration methods in equity index, fixed income, currency, and commodity futures markets. We confront the naïve equal-weight integration (EWI) method with a host of 'sophisticated' style-integrations that derive the style exposures using past data according to utility maximization, style rotation, volatility timing, cross-sectional pricing, style momentum or principal components criteria. The analysis, conducted separately per futures market and cross-markets, reveals that the EWI portfolio is unrivalled in terms of risk-adjusted performance while it sustains a relatively low turnover. The findings are robust to analyses that entertain variants of the sophisticated integrations, longer estimation windows, several asset scoring schemes, data snooping tests, sub-periods evaluation and equities in place of futures.

show abstract

The mixed vs the integrated approach to style investing: Much ado about nothing?

Cited by 19 publications

References 51 publications

Bottom-up versus top-down factor investing: an alpha forecasting perspective

Bottom-up versus top-down factor investing: an alpha forecasting perspective

Fama–French factor timing: The long‐only integrated approach

A comprehensive appraisal of style-integration methods

Contact Info

Product

Resources

About