Factors and Sectors in Asset Allocation: Stronger Together?
Brière, Marie; Szafarz, Ariane (2018), Factors and Sectors in Asset Allocation: Stronger Together?, in Bulusu, Narayan; Coche, Joachim; Reveiz, Alejandro; Rivadeneyra, Francisco; Sahakyan, Vahe; Yanou, Ghislain, Advances in the practice of public investment management. Portfolio modelling, performance attribution and governance, Palgrave : Basingstoke, p. 291-309. 10.1007/978-3-319-90245-6_11
External document linkhttps://dx.doi.org/10.2139/ssrn.2965346
Book titleAdvances in the practice of public investment management. Portfolio modelling, performance attribution and governance
Book authorBulusu, Narayan; Coche, Joachim; Reveiz, Alejandro; Rivadeneyra, Francisco; Sahakyan, Vahe; Yanou, Ghislain
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Laboratoire d'Economie de Dauphine [LEDa]
Département d'économie appliquée de l'université libre de Bruxelles [Dulbéa]
Université Libre de Bruxelles
Centre Emile Bernheim
Abstract (EN)This paper compares and contrasts factor investing and sector investing, and then seeks a compromise by optimally exploiting the advantages of both styles. Our results show that sector investing is effective for reducing risk through diversification while factor investing is better for capturing risk premia and so pushing up returns. This suggests that there is room for potentially fruitful combinations of the two styles. Presumably, by combining factors and sectors, investors would benefit both from the diversification potential of the former and the risk premia of the latter. The tests reveal that composite strategies are particularly attractive; they confirm that sector investing helps reduce risks during crisis periods, while factor investing can boost returns during quiet times.
Subjects / Keywordsinvestment; asset allocation; factor; industry; sector; crisis
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