%0 Journal Article
%A De Franco, Carmine
%A Guidolin, Massimo
%A Monnier, Bruno
%T The Robustness of the Volatility Factor: *Linear versus Nonlinear Factor Model*
%D 2017
%R 10.3905/jii.2017.8.3.075
%J The Journal of Index Investing
%P 75-88
%V 8
%N 3
%X This article investigates the trade-off between an extension of the standard three-factor model including a new volatility factor compared to a parsimonious Markov switching model in the context of performance and risk analysis for a set of popular alternative beta strategies. The authors use Bayesian techniques to estimate a two-state (bull and bear) regime-switching model. Over the period of 1969–2014, they show that the inclusion of a time-varying feature in the standard model is as good as the extension of the volatility factor, at least in explaining the alphas for some alternative beta strategies.
%U https://jii.pm-research.com/content/iijindinv/8/3/75.full.pdf