Institutional investors, such as pensions and insurers, are typically constrained to hold enough wealth to be able to make their contractually promised payments to fund beneficiaries. This creates an additional risk in the economy, namely the risk of funding shortfall. We seek to explore the...

This study proposes a new ranking criterion for constructing momentum portfolios, namely, risk-adjusted cross-sectional momentum. We propose the combination of traditional cross-sectional momentum strategies with different volatility timing strategies in the form of the Sharpe ratio. Then, we...

Standard factor models imply a linear relationship between expected returns on assets and their factor exposures. We provide the asymptotic properties of factor-model-based expected return estimators for individual assets and show that exploiting this linear relationship leads to precision gains...

Factor investing emerged as the byproduct of factor models of asset pricing. It consists in holding assets with positive exposure to selected risk factors and, if possible, shorting those with negative exposure. This paper assesses the merits of factor investing on the U.S. stock market by using...

Investors live in a multi-period, volatile world and base their decisions on theories of asset pricing, and asset allocation, often derived from a single period model. They make assumptions about asset returns and volatilities and use optimizers to set their long term allocations, and often...

Allocation between factor portfolios can bring significant advantages over traditional portfolio optimization performed among individual assets or asset classes. One such advantage is a substantial dimension reduction when one's attention turns from many assets to few factors. This, however,...

We show that subject to regularity conditions, for a given location-scale distribution all performance measures which are increasing functions of reward and decreasing functions of risk are monotonically increasing functions of the Sharpe ratio. For large sample sizes, the correlation between...

In this article, we advance the use of factor investing across multiple asset classes. It turns out that style factors well established in the equity domain – such as value, momentum or quality – do extend to other asset classes as well. Even more so, multi-asset multi-factors significantly...