Managing the Market Portfolio

Management Science, Forthcoming

90 Pages Posted: 12 Mar 2022

See all articles by Fabian Hollstein

Fabian Hollstein

Saarland University

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Date Written: January 19, 2022

Abstract

We analyze the relation between time-series predictability and factor investing. We use a large set of financial, macroeconomic, and technical variables to time-series-manage the market portfolio. A combination of the out-of-sample market excess return forecasts of all variables yields a managed market portfolio that generates alphas relative to cross-sectional factor models that exceed 5% per annum. More broadly, the relation between time-series evaluation measures and (multifactor) alphas is weakly positive, but complex. The variables' predictability for future returns is more important than that for volatility. Finally, we document that managed market portfolios based on lagged factor realizations also perform well.

Keywords: Conditioning variables, managed portfolios, market portfolio, market timing

JEL Classification: G12, G11

Suggested Citation

Hollstein, Fabian and Prokopczuk, Marcel and Prokopczuk, Marcel, Managing the Market Portfolio (January 19, 2022). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4014540

Fabian Hollstein (Contact Author)

Saarland University ( email )

Campus
Saarbrucken, Saarland D-66123
Germany

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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