PT - JOURNAL ARTICLE AU - Carmine De Franco AU - Massimo Guidolin AU - Bruno Monnier TI - The Robustness of the Volatility Factor: <em>Linear versus Nonlinear Factor Model</em> AID - 10.3905/jii.2017.8.3.075 DP - 2017 Nov 30 TA - The Journal of Index Investing PG - 75--88 VI - 8 IP - 3 4099 - https://pm-research.com/content/8/3/75.short 4100 - https://pm-research.com/content/8/3/75.full AB - 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.TOPICS: Factor-based models, statistical methods, volatility measures