Market Timing

  • Fama, Schwert, 1997, T-Bills
  • Fama, French, 1988, DivY
  • Campbell, Shiller, D/P
  • Keim, Stambaugh, 1986, TERM
  • French et al, 1987, Market Vol
  • Kothari, Shaken, 1997, B/P
  • Goyal, Welch, 2008

Asset Class Timing

  • Erb Harvey, 2006, Commodities

Factor Timing

Early contributions

Title Author, Year Keywords
Bubble Logic Asness, 2000
Fight the Fed Model Asness, 2003
Style Timing: Value versus Growth Asness, Friedman, Krail, Liew

Optimists

  • Arnott, et al 2016, 2017, Factor Valuation
  • Lou, Polk, 2014, Factor Crowdness
  • Ehsani, Linnainmaa, 2019, Factor Momentum

Sceptics

  • Asness, 2016
    • "resist the Siren Song"
  • Lee, 2017
    • "Its deceptively difficult"

Regime-Based Timing

  • Van Vliet, Blitz, 2011, Ilmanen et al, 2014 - based on economic regime "nowcasts"
  • Hodges, et al, 2017
  • Bender et al, 2018
  • Blin et al, 2017, 2018
  • Varsani, Jain, 2018
  • Scherer, Apel, 2019

Factor Timing Methods

Pro Factoring Timing/Factor Tilting

  • Factor Timing
    • based on time-series or economic regime-based information
    • single assets/strategies or whole portfolio
    • entry/exit signals in medium term
  • Factor Tilting
    • cross-sectional factor in factors information
    • portfolio of assets/strategies
    • overweight/underweight signals
    • short/medium term tactical calls
  • Andrew Ang
    • tilting based on macroeconomic analysis
      • economic regime signal (min vol, quality overweight, size value underweight)
      • dispersion Signal(Momentum)
      • Relative Strength Signal(Momentum Overwight)
      • Valuation Signal

Paper

  • Hodges, P., Hogan, K., Peterson, J. and Ang, A. (2017). Factor Timing with Cross-Sectional and Time-Series Predictors. The Journal of Portfolio Management, 44(1), pp.30-43.

Against Factor Timing

  • https://www.aqr.com/Insights/Research/Journal-Article/Contrarian-Factor-Timing-is-Deceptively-Difficult
  • https://www.aqr.com/Insights/Research/Interviews/The-Devil-in-HMLs-Details-Supplemen
  • Arnott, Robert D et al. (2016a). "How Can 'Smart Beta' Go Horribly Wrong?" Available at SSRN. URL: https//papers.ssrn.com/abstract-3040949.
  • Arnott, Robert D, Noah Beck, and Vitali Kalesnik(2016b). "Timing 'Smart Beta' Strategies? Of Course! Buy Low, Sell High!" Available at SSRN. URL: https://papers.ssrn.com/abstract-3040956.
  • Arnott, Robert D, Noah Beck, and Vitali Kalesnik((2016c). "To Win with 'Smart Beta' Ask If the Price
  • is Right". Available at SSRN. URL: https://papers.Ssrn.com/abstract-3040976.
  • Asness, Clifford et al. (2017). "Contrarian Factor Timing is Deceptively Difficult". Journal of Portfolio Management 43.5, pp. 72-87.
  • Asness, Clifford S (2016a). "My factor philippic". Available at SSRN. URL: https://papers. ssrn.com/abstract-2799441.
  • Asness, Clifford S (2016b). "The Siren Song of Factor Timing aka "Smart Beta Timing" aka "Style Timing'". Journal of Portfolio Management 42.5, pp. 1-6.
  • Asness, Clifford S, Andrea Frazzini, and Lasse H Pedersen (2012). "Leverage aversion and risk parity".
  • Financial Analysts Journal 68.1, Asness, Clifford S, Tobias J Moskowitz, and Lasse
  • Heje Pedersen (2013). "Value and momentum everywhere". Journal of Finance 68.3, pp. 929-985.
  • Baker, Malcolm, Brendan Bradley, and Jeffrey Wurgler (2011). "Benchmarks as limits to arbitrage: Understanding the low-volatility anomaly". Financial
  • Analysts Journal 67.1, pp. 40-54.

  • Barroso, Pedro and Andrew L Detzel (2018). "Do Limits to Arbitrage Explain the Benefits of VolatilityManaged Portfolios?" Available at SSRN. URL: https//papers.ssrn.com/abstract-3088828.

  • Ang A. 12014), Asset Management. A Systematic Approach to Factor Based Investing. NY: Oxford Univercity Press

  • Ang A., and G. Bekaert (2004), "How Regimes Affect Asset Allocation", Financial Analysts Journal 60, 86-99.
  • Asnecs C. (2016), "The siren cong of factor timing aka smart beta timing aka style timing", Journal of Portfoli0 Management 42, 1-6
  • Asneso C, Chandra S., Imanen A, and lsrael B. (2017), "Contrarian factor timing is deceptively difficult", Journal of Portfolio Management 43 (5), 72-87
  • Acness C., Friedman J., Krail R., and J. Liew (2000), "Style Timing: Value versus Growth", Journal of Portfolio Managernent 26, 50-60
  • Baltac N. (2017), "Optimizing Cross-Ascet Carry" in E. Jurczenko (editor), Factor Investing and Alternative Risk Premia, ISTE-Elsevier Preco
  • Baltas N, and R. Kosowski (2013) "Momenturn Strategiec in Futures Markets and Trend-Following Funds", SSAN Working Paper
  • Bender J.. Sun X. Thomas R., and V Zdorovtsov (2018), "The Promises and Pitfalls of Factor Timing", Journal of Portfolio Management 44, 79-92
  • Carhart M., U.W. Cheah, G. De Santis. H. Farrell, and R. Litterman (2014), "Exotic Beta Revisited", Financial Analysto Journal 70, 24-52.
  • Cochrane J (2011), "Presidential Addresc: Discount Rates" Journal of Finance 66 14), 1047-1108
  • Cohen R., Polk C., and VuolteenahoT. (2003), "The Value Spread", Journal of Finance, 58(2), 609-642
  • Cooper I, Mitrache A., and R Priestley 12016), "A Global Macroeconomic Risk Explanation for Momentum and Value", SSHN Working Paper
  • Gnedenko B, and I. Yelnik (2014), "Dynamic Risk Allocation with Carry, Value and Momentum", SSRN Working Paper
  • Haddad V. Kozak S, Santosh S. (2018), « The Economics of Factor Tining », SSRN Working Paper
  • Hodges P, Hogan K Peterson J., Ang A. (2017), « Factor Timing with Cross-Sectional and Time-Series Predictors", Journal of Portfolio Management 44, 30-43
  • Hurst B, Ooi Y., arnd L. Pedercen (2013), "Demyctifying Managed Futures," Journal of Investment Management 11, 42-58.
  • lImanen A., Maloney T, and A Ross (2014), "Exploring Macroeconomic Sensitivities. How Investrnents Respond to Different Economic Environnents, Journal of Portfolio Management 40, 87-99.
  • Jurczenko E, and J Teiletche (2018), "Active Risk-Based Investing", Journal of Portfolio Management, 44 (3) 56-65
  • Koijen R, Moskowitz T., Pedersen L, and E Vrugt (2017). "Carry", Journal of Financial Economics, 127/2), 197-225.
  • Kritzman M, S. Page, and D. Turkington (2012), "Regime Shifts. Implication for Dynamic Strategies", Financial Analysts Journal 68, 22-39
  • Lemperiere Y., Deremble C. Nguyen T, Seager P, Potters M, and J-P. Bouchaud (2014), "Two Centuries of Trend Following", Journal of Investrnent Strategies 3, 41-61
  • Luo Y. (2017), "Style Factor Timing" in E. Jurczenko (editor), Factor Investing and Alternative Risk Premia, ISTE-Elsevier Press
  • Maillard S., RoncalliT, and J. Teletche (2010), "The Properties of Equally Weighted Risk Contribution Porttolios", Journal of Portfolio Management 36, 60-70.
  • Moskowitz L, 0oi Y.. and L. Pedersen (2012), "Time Seriec Momentum, Journal of Financial Economics 104, 228-250.
  • Naya F., and N Tuchschmid (2017), "Alternative Risk Premia: Is the Selection Proceso Important?", SSRN Working Paper
  • Suhonen A, Lennkh M, and F Perez (2017), "Quantıfying Backtest Overfitting in Alternative Beta Strategies", Journal of Portfolio Management 43, 90-104
  • Yara F, Boons M., and A. Tamoni (2018), "Value Return Predictability Across Acset Clacces and Commonalitiec in Rick Premia", SSRN Working Paper.

Effectiveness of Factors

Main Related Academic Studies Using 13F Data

Lewellen 2011, Edelen et al. 2015, Akbas et al. 2015 in JFE... and Calluzzo et al.

Lewellen (2011), "Institutional Investors and the Limits of Arbitrage"

18F (level) data 1980-2007 shows that institutional investors as a group largely hold the market portfolio, with only minor tilts away trom the market on a dozen major anomalies

Edelen-Ince-Kadlec (2015), "Institutional Investors and Stock Return Anomalies"

institutional investors typically are on the wrong side of major anomalies (except for momentum) during a 1yr period when the anomaly portiollo was constructed. In particular, institutions often buy apparently overvalued stocks instead of shorting them.

Akbas-Sorescu-Subrahmanyam (2015), "Smart Money, Dumb Money, and Cap Mkt Anomalies

Authors Identity hedge funds as smart money and mutual funds as dumb money. They then show that aggregate inflows to mutual funds exacerbate Sectonal mispricings, while hedge fund inflows attenuate them. In both cases, the main impact of inflows is on overvalued stocks.

CalluzzO-Moneta-Topaloglu (2015): "Anomalies are Publicized Broadly, Institutions Trade Accordingly, and Returns Decay

Correspondingly", working paper.

More positive results for institutional arbitrage activity than earlier studies. "Higher anomaly-based trading among institutional investors, mainlyhedge funds and "transient institutions (with high turnover, broad diversification) is found following the publication of research on anomalies. Higher trading seems in turn to explain the decay in post-publication anomaly returns.

Different results in

Edelen et al. (2015) reflect their use of a long window (>12mo., before ranking). Calluzzo et al.

use a much shorter two-quarter window surrounding the anomaly ranking date. Thus, results here highlight the responsive, rather than anticipatory, behavior of institutions wrt. publicly available information

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