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Factor investing in Brazil: Diversifying across factor tilts and allocation strategies

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  • Alles Rodrigues, Alexandre
  • Casalin, Fabrizio

Abstract

We employ a methodology to construct multi-beta multi-strategy (MBMS) indices for the Brazilian equity market that can diversify the exposure to multiple rewarded risk factors and unrewarded strategy-specific risks. We do so by considering as many as six risk factors, and five allocation strategies. Empirical results show that the MBMS indices so obtained outperform the cap-weighted benchmark index in both absolute and risk-adjusted terms. We also show that the same indices have a higher probability of outperforming the market than the individual multi-strategy factor indices, and that such outperformance is persistent over time.

Suggested Citation

  • Alles Rodrigues, Alexandre & Casalin, Fabrizio, 2022. "Factor investing in Brazil: Diversifying across factor tilts and allocation strategies," Emerging Markets Review, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:ememar:v:52:y:2022:i:c:s1566014122000231
    DOI: 10.1016/j.ememar.2022.100906
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    More about this item

    Keywords

    Factor Investing; Factor diversification; Model diversification; Strategy-specific risks; Double-layered diversification; Emerging equity market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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