Waiting for the Next Factor Wave: Daily Rebalancing around Market Cycle Transitions

The Journal of Portfolio Management Quantitative Special Issue 2021, 47 (2) 127-144; DOI: https://doi.org/10.3905/jpm.2020.47.2.127

Posted: 8 Feb 2023

See all articles by Antonio Picca

Antonio Picca

Goldman Sachs Group, Inc.

Kevin Khang

The Vanguard Group, Inc.

Date Written: December 31, 2020

Abstract

To deliver historically observed factor premiums, long-only factor investing relied heavily on a small number of periods, when factors realized outsized returns in the midst of changing market leadership. This article shows that by rebalancing factor funds more frequently during these periods—rebalancing on a daily basis instead of monthly or biannually—investors would have achieved significantly higher factor premiums, effectively doubling the historically observed premiums of many factors. These findings indicate that to harvest factor premiums to their maximal potential, skill is needed on the part of the fund manager—an ability to tell the right moment to aggressively rebalance.

Keywords: Analysis of individual factors/risk premia, factor-based models, factors, risk premia

Suggested Citation

Picca, Antonio and Khang, Kevin, Waiting for the Next Factor Wave: Daily Rebalancing around Market Cycle Transitions (December 31, 2020). The Journal of Portfolio Management Quantitative Special Issue 2021, 47 (2) 127-144; DOI: https://doi.org/10.3905/jpm.2020.47.2.127, Available at SSRN: https://ssrn.com/abstract=4348971

Antonio Picca (Contact Author)

Goldman Sachs Group, Inc. ( email )

85 Broad Street
New York, NY 10004
United States

Kevin Khang

The Vanguard Group, Inc. ( email )

100 Vanguard Blvd
Malvern, PA 19355
United States

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