Managing the Market Portfolio

Research output: Contribution to journalArticleResearchpeer review

Authors

External Research Organisations

  • Saarland University
View graph of relations

Details

Original languageEnglish
Pages (from-to)3675-3696
Number of pages22
JournalManagement Science
Volume69
Issue number6
Early online date29 Jun 2022
Publication statusPublished - Jun 2023

Abstract

We analyze the relation between time-series predictability and factor investing. We use a large set of financial, macroeconomic, and technical variables to time-series-manage the market portfolio. A combination of the out-of-sample market excess return forecasts of all variables yields a managed market portfolio that generates alphas relative to cross-sectional factor models that exceed 5% per annum. More broadly, the relation between time-series evaluation measures and (multifactor) alphas is weakly positive but complex. The variables’ predictability for future returns is more important than that for volatility. Finally, we document that managed market portfolios based on lagged factor realizations also perform well.

Keywords

    conditioning variables, managed portfolios, market portfolio, market timing

ASJC Scopus subject areas

Cite this

Managing the Market Portfolio. / Hollstein, Fabian; Prokopczuk, Marcel.
In: Management Science, Vol. 69, No. 6, 06.2023, p. 3675-3696.

Research output: Contribution to journalArticleResearchpeer review

Hollstein F, Prokopczuk M. Managing the Market Portfolio. Management Science. 2023 Jun;69(6):3675-3696. Epub 2022 Jun 29. doi: 10.1287/mnsc.2022.4459
Hollstein, Fabian ; Prokopczuk, Marcel. / Managing the Market Portfolio. In: Management Science. 2023 ; Vol. 69, No. 6. pp. 3675-3696.
Download
@article{76a21075b425471fba041c3ad1177fd2,
title = "Managing the Market Portfolio",
abstract = "We analyze the relation between time-series predictability and factor investing. We use a large set of financial, macroeconomic, and technical variables to time-series-manage the market portfolio. A combination of the out-of-sample market excess return forecasts of all variables yields a managed market portfolio that generates alphas relative to cross-sectional factor models that exceed 5% per annum. More broadly, the relation between time-series evaluation measures and (multifactor) alphas is weakly positive but complex. The variables{\textquoteright} predictability for future returns is more important than that for volatility. Finally, we document that managed market portfolios based on lagged factor realizations also perform well.",
keywords = "conditioning variables, managed portfolios, market portfolio, market timing",
author = "Fabian Hollstein and Marcel Prokopczuk",
year = "2023",
month = jun,
doi = "10.1287/mnsc.2022.4459",
language = "English",
volume = "69",
pages = "3675--3696",
journal = "Management Science",
issn = "0025-1909",
publisher = "INFORMS Institute for Operations Research and the Management Sciences",
number = "6",

}

Download

TY - JOUR

T1 - Managing the Market Portfolio

AU - Hollstein, Fabian

AU - Prokopczuk, Marcel

PY - 2023/6

Y1 - 2023/6

N2 - We analyze the relation between time-series predictability and factor investing. We use a large set of financial, macroeconomic, and technical variables to time-series-manage the market portfolio. A combination of the out-of-sample market excess return forecasts of all variables yields a managed market portfolio that generates alphas relative to cross-sectional factor models that exceed 5% per annum. More broadly, the relation between time-series evaluation measures and (multifactor) alphas is weakly positive but complex. The variables’ predictability for future returns is more important than that for volatility. Finally, we document that managed market portfolios based on lagged factor realizations also perform well.

AB - We analyze the relation between time-series predictability and factor investing. We use a large set of financial, macroeconomic, and technical variables to time-series-manage the market portfolio. A combination of the out-of-sample market excess return forecasts of all variables yields a managed market portfolio that generates alphas relative to cross-sectional factor models that exceed 5% per annum. More broadly, the relation between time-series evaluation measures and (multifactor) alphas is weakly positive but complex. The variables’ predictability for future returns is more important than that for volatility. Finally, we document that managed market portfolios based on lagged factor realizations also perform well.

KW - conditioning variables

KW - managed portfolios

KW - market portfolio

KW - market timing

UR - http://www.scopus.com/inward/record.url?scp=85164217103&partnerID=8YFLogxK

U2 - 10.1287/mnsc.2022.4459

DO - 10.1287/mnsc.2022.4459

M3 - Article

VL - 69

SP - 3675

EP - 3696

JO - Management Science

JF - Management Science

SN - 0025-1909

IS - 6

ER -

By the same author(s)