Performance Attribution for Factor Investing
24 Pages Posted: 16 Sep 2019 Last revised: 3 May 2021
Date Written: March 31, 2021
Abstract
This note presents a novel approach to the performance analysis of
multi-factor investment strategies. Our main methodological contributions are threefold : first, the use of a cross-sectional projection of asset
returns onto the factors to form approximate portolio returns; second,
that of nonlinear, interaction terms between factors that faithfully reproduce the investment portfolio construction; third, a natural and intuitive
decomposition of the portfolio performance as the sum of factor contributions. The method is presented in details, and concrete applications to
multi-factor equity strategies are presented.
Keywords: factor investing, performance attribution, portfolio construction
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