Factor/Style Investing

Factor Premia and Factor Timing: A Century of Evidence, Factor Data Monthly

Topics - Factor/Style Investing Value Momentum

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Factor Premia and Factor Timing: A Century of Evidence, Factor Data Monthly

This data set is related to "Factor Premia and Factor Timing: A Century of Evidence" (Ilmanen, Israel, Moskowitz, Thapar, and Wang, 2019). We examine four prominent factor premia – value, momentum, carry, and defensive – over a century from six asset classes. First, we verify their existence with a mass of out-of-sample evidence across time and asset markets. We find a 30% drop in estimated premia out of sample, which we show is more likely due to overfitting than informed trading. Second, probing for potential underlying sources of the premia, we find little reliable relation to macroeconomic risks, liquidity, sentiment, or crash risks, despite adding five decades of global economic events. Finally, we find significant time-variation in factor premia that are mildly predictable when imposing theoretical restrictions on timing models. However, significant profitability eludes a host of timing strategies once proper data lags and transactions costs are accounted for. The results offer support for time-varying risk premia models with important implications for theory seeking to explain the sources of factor returns.

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Past performance is no guarantee of future results.

 

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