RT Journal Article
SR Electronic
T1 The Robustness of the Volatility Factor: *Linear versus Nonlinear Factor Model*
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 75
OP 88
DO 10.3905/jii.2017.8.3.075
VO 8
IS 3
A1 De Franco, Carmine
A1 Guidolin, Massimo
A1 Monnier, Bruno
YR 2017
UL http://jii.pm-research.com/content/8/3/75.abstract
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