Factor Investing and Asset Allocation: A Business Cycle Perspective

192 Pages Posted: 10 Mar 2017

See all articles by Vasant Naik

Vasant Naik

Pacific Investment Management Company (PIMCO)

Mukundan Devarajan

Pacific Investment Management Company (PIMCO)

Andrew Nowobilski

Pacific Investment Management Company (PIMCO)

Sebastien Page

Pimco

Niels Pedersen

Pimco

Date Written: December 29, 2016

Abstract

This monograph draws heavily on the vast body of knowledge that has been built by financial economists over the last 50 years. Its goal is to show how to solve real‐life portfolio allocation problems. We have found that using a broad range of models works best. Also, we prefer simple over complex models. We believe that simplicity and modularity lend substantial robustness to investment analysis. Importantly, the framework presented provides several of the “missing links” in asset allocation—for example, the links between asset classes and risk factors, between macroeconomic views and expected returns, and ultimately between quantitative and fundamental investing.

Keywords: factors, factor investing, business cycle, asset allocation, CFA, CFA Institute, CFA Institute Research Foundation

JEL Classification: G10, G11, G15

Suggested Citation

Naik, Vasant and Devarajan, Mukundan and Nowobilski, Andrew and Page, Sebastien and Pedersen, Niels, Factor Investing and Asset Allocation: A Business Cycle Perspective (December 29, 2016). CFA Institute Research Foundation 2016-4. Available at SSRN: https://ssrn.com/abstract=2930857

Vasant Naik (Contact Author)

Pacific Investment Management Company (PIMCO) ( email )

United States

Mukundan Devarajan

Pacific Investment Management Company (PIMCO)

United States

Andrew Nowobilski

Pacific Investment Management Company (PIMCO)

United States

Sebastien Page

Pimco ( email )

United States

Niels Pedersen

Pimco ( email )

United States

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