TY - JOUR
T1 - The Robustness of the Volatility Factor: <em>Linear versus Nonlinear Factor Model</em>
JF - The Journal of Index Investing
SP - 75
LP - 88
DO - 10.3905/jii.2017.8.3.075
VL - 8
IS - 3
AU - De Franco, Carmine
AU - Guidolin, Massimo
AU - Monnier, Bruno
Y1 - 2017/11/30
UR - http://jii.pm-research.com/content/8/3/75.abstract
N2 - 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
ER -