Optimal Timing and Tilting of Equity Factors

Financial Analysts Journal, 2019, Vol. 75(4), pp. 84-102

31 Pages Posted: 15 Dec 2018 Last revised: 23 Oct 2019

See all articles by Hubert Dichtl

Hubert Dichtl

dichtl research & consulting GmbH; University of Hamburg

Wolfgang Drobetz

University of Hamburg

Harald Lohre

Robeco Quantitative Investments; Lancaster University Management School

Carsten Rother

Invesco; University of Hamburg

Patrick Vosskamp

Allianz Global Investors

Date Written: October 21, 2019

Abstract

Aiming to optimally harvest global equity factor premiums, we investigated the benefits of parametric portfolio policies for timing factors conditioned on time-series predictors and tilting factors based on cross-sectional factor characteristics. We discovered that equity factors are predictably related to fundamental and technical time-series indicators and to such characteristics as factor momentum and crowding. We found that such predictability is hard to benefit from after transaction costs. Advancing the timing and tilting policies to smooth factor allocation turnover slightly improved the evidence for factor timing but not for factor tilting, which renders our analysis a cautionary tale on dynamic factor allocation.

Keywords: asset allocation, factor investing, factor timing, factor tilting, parametric portfolio policy

JEL Classification: G11, D81, D85

Suggested Citation

Dichtl, Hubert and Drobetz, Wolfgang and Lohre, Harald and Rother, Carsten and Vosskamp, Patrick, Optimal Timing and Tilting of Equity Factors (October 21, 2019). Financial Analysts Journal, 2019, Vol. 75(4), pp. 84-102, Available at SSRN: https://ssrn.com/abstract=3277887 or http://dx.doi.org/10.2139/ssrn.3277887

Hubert Dichtl

dichtl research & consulting GmbH ( email )

Am Bahnhof 7
65812 Bad Soden am Taunus
Germany

HOME PAGE: http://www.dichtl-research-consulting.de

University of Hamburg ( email )

Moorweidenstr. 18
Hamburg, 20148
Germany

Wolfgang Drobetz

University of Hamburg ( email )

Moorweidenstrasse 18
Hamburg, 20148
Germany

Harald Lohre

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3011 AG
Netherlands

Lancaster University Management School

Bailrigg
Lancaster LA1 4YX
United Kingdom

HOME PAGE: http://www.lancaster.ac.uk/lums/people/harald-lohre

Carsten Rother (Contact Author)

Invesco ( email )

An der Welle 5
Frankfurt am Main, 60322
Germany

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Patrick Vosskamp

Allianz Global Investors ( email )

Bockenheimer Landstr. 42-44
Frankfurt am Main, 60385
Germany

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