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When it Rains, it Pours: Multifactor Asset Management in Good and Bad Times

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  • Marie Briere
  • Ariane Szafarz

Abstract

We examine the profitability of multifactor portfolios on the U.S. stock market. Using passive sector investing as the benchmark, we assess the performances of factor-based asset management strategies in good and bad times. When short selling is unrestricted, factor investing outperforms sector investing in all respects. For long-only portfolios, our results reveal a trade-off between the risk premia associated with factors and the diversification potential of sectors. Multifactor investing tends to be more profitable than the benchmark during good times but less attractive during bad times, when diversification is needed the most.

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  • Marie Briere & Ariane Szafarz, 2021. "When it Rains, it Pours: Multifactor Asset Management in Good and Bad Times," Working Papers CEB 21-002, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:sol:wpaper:2013/319463
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    Keywords

    Portfolio management; asset allocation; factor; industry; sector; crisis;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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