Factor Timing

• 成果类型: Article
• 署名作者: Haddad, Valentin; Kozak, Serhiy; Santosh, Shrihari
• 署名单位: University of California System; University of California Los Angeles; National Bureau of Economic Research; University System of Maryland; University of Maryland College Park; University of Colorado System; University of Colorado Boulder
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhaa017
• 发表日期: 2020
• 页码: 1980
• 关键词: cross-section; stock returns; SMART MONEY; GROWTH; RISK; consumption; INFORMATION; INVESTMENT; volatility; arbitrage

摘要

The optimal factor timing portfolio is equivalent to the stochastic discount factor. We propose and implement a method to characterize both empirically. Our approach imposes restrictions on the dynamics of expected returns, leading to an economically plausible SDF. Market-neutral equity factors are strongly and robustly predictable. Exploiting this predictability leads to substantial improvement in portfolio performance relative to static factor investing. The variance of the corresponding SDF is larger, is more variable over time, and exhibits different cyclical behavior than estimates ignoring this fact. These results pose new challenges for theories that aim to match the cross-section of stock returns.