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Factor Timing with Portfolio Characteristics

Author

Listed:
  • Anastasios Kagkadis
  • Ingmar Nolte
  • Sandra Nolte
  • Nikolaos Vasilas

Abstract

In a factor timing context, academic research has focused on identifying a set of predictors that can explain the dynamics of factor portfolios. We propose an alternative approach for timing factor portfolio returns by exploiting the information from their portfolio characteristics. Different combinations of dimension reduction techniques are employed to independently reduce the number of both predictors and portfolios to predict. Characteristic-based models outperform existing methods in terms of exact predictability, as well as investment performance. (JEL G10, G11, C52, C55)

Suggested Citation

  • Anastasios Kagkadis & Ingmar Nolte & Sandra Nolte & Nikolaos Vasilas, 2024. "Factor Timing with Portfolio Characteristics," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 14(1), pages 84-118.
    • Handle: RePEc:oup:rasset:v:14:y:2024:i:1:p:84-118.
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    File URL: http://hdl.handle.net/10.1093/rapstu/raad010
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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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