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When it rains, it pours: Multifactor asset management in good and bad times
Author(s) -
Brière Marie,
Szafarz Ariane
Publication year - 2021
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12257
Subject(s) - diversification (marketing strategy) , profitability index , financial economics , benchmark (surveying) , economics , stock (firearms) , asset management , stock market , asset allocation , capital asset pricing model , business , econometrics , finance , portfolio , marketing , engineering , mechanical engineering , paleontology , geodesy , horse , biology , geography
Abstract We examine the profitability of multifactor portfolios on the US stock market. Using passive sector investing as the benchmark, we assess the performances of factor‐based asset management strategies in good and bad times. When short selling is unrestricted, factor investing outperforms sector investing in all respects. For long‐only portfolios, our results reveal a trade‐off between the risk premia associated with factors and the diversification potential of sectors. Multifactor investing tends to be more profitable than the benchmark during good times but less attractive during bad times, when diversification is needed the most.