RT Journal Article
SR Electronic
T1 Factor Exposure of Alternative Beta Strategies<br/>across Market Regimes
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 78
OP 91
DO 10.3905/jii.2016.7.1.078
VO 7
IS 1
A1 Carmine De Franco
A1 Bruno Monnier
A1 Ksenya Rulik
YR 2016
UL https://pm-research.com/content/7/1/78.abstract
AB The authors study the time-dependent relationship between alternative beta strategies and the Fama–French factors. It is widely believed that the excess performance of alternative beta strategies can be explained by their exposure to well-known pricing factors, such as size and value. Nevertheless, there is still a limited understanding of the dynamics of the relationship between the strategies and the risk factors in different market regimes. The authors estimate a four-regime, Markov switching model on a dataset that includes the returns of a market portfolio, value and size factors, and two alternative beta strategies (equal weight and minimum variance). A three-factor model, conditional on regimes, shows that the factor exposures of the strategies change significantly across regimes, indicating that alternative beta strategies might not offer static exposure to risk factors over time.TOPICS: Analysis of individual factors/risk premia, quantitative methods, portfolio theory