Time‐Series Variation in Factor Premia: The Influence of the Business Cycle

Polk, Christopher; Haghbin, Mo; Longis, Alessio de

doi:10.1002/9781119599364.ch12

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Reviewing Macro and Style Factor Research1

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2024

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“…They emphasize the strong performance of regime-shifting investment strategies compared to static allocations. Such evidence is substantiated by various researchers in the context of factor timing strategies based on different regime classifications (see, e.g., Polk, Haghbin, and De Longis, 2020;Chousakos and Giamouridis, 2020). To this end, Markovswitching models are frequently used, see, e.g., Kritzman, Page, and Turkington (2012) who forecast regimes in market turbulence, inflation, and economic growth.…”

Section: Reviewing Macro and Style Factor Researchmentioning

confidence: 91%

A Century of Macro Factor Investing—Diversified Multi-Asset Multi-Factor Strategies through the Cycles

Swade,

Lohre,

Nolte

et al. 2024

JPM

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We diversify a multi-asset investment portfolio across macroeconomic factors that we mimic by investable asset classes and style factors. Using a century of global data we analyze the resulting multi-asset multi-factor portfolio's sensitivities to different macroeconomic scenarios and highlight the relevance of navigating time variation in macroeconomic risk premia. Specifically, we adapt the portfolio allocation to align with the identified macro environment as predicted by a forward-looking business cycle model. A Black-Litterman framework is used to thus improve upon a diversified macro factor allocation and to further tap into predictive asset class and style factor signals.

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Section: Reviewing Macro and Style Factor Researchmentioning

confidence: 91%