'Long' Factors, not 'Short' Change : Long Only Factor Portfolios in India

Abstract

We show that monthly rebalanced, equal-weighted, long-only winner portfolios, drawn from the top 200 stocks in India, built using systematic rules that underpin popular factors of momentum, low volatility and quality deliver alpha for the period under study. The market exposure is significant across all the style strategies we looked at. Therefore, correlations between the strategies are significantly higher than those observed for academic factor returns. We include alternate calculation methodologies for some factors and find that not all implementations of factor strategies are the same. Not all strategies have high turnover. Indeed, strategies like low volatility and quality show fairly low turnover. Factor exposure persistence over time varies across strategies and persistence should be considered when implementing factor-style strategies. We also find that size and sectoral preferences of factors are dynamic and could reduce perceived diversification benefits. Finally, we show that alpha for momentum, low volatility and quality strategies survives real-world implementation costs. While winner portfolios using momentum, low volatility, and quality rank higher than the broad S&P 200 Index over the period under study, there is not one factor-style that is a consistent winner.

Keywords: Factors, Factor Investing, India

JEL Classification: G00, G11, C15