Details
| Original language | English |
|---|---|
| Pages (from-to) | 3675-3696 |
| Number of pages | 22 |
| Journal | Management Science |
| Volume | 69 |
| Issue number | 6 |
| Early online date | 29 Jun 2022 |
| Publication status | Published - 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
- Business, Management and Accounting(all)
- Strategy and Management
- Decision Sciences(all)
- Management Science and Operations Research
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In: Management Science, Vol. 69, No. 6, 06.2023, p. 3675-3696.
Research output: Contribution to journal › Article › Research › peer review
}
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 -