TY - JOUR T1 - The Promises and Pitfalls of Factor Timing JF - The Journal of Portfolio Management SP - 79 LP - 92 DO - 10.3905/jpm.2018.44.4.079 VL - 44 IS - 4 AU - Jennifer Bender AU - Xiaole Sun AU - Ric Thomas AU - Volodymyr Zdorovtsov Y1 - 2018/03/31 UR - https://pm-research.com/content/44/4/79.abstract N2 - The potential to dynamically allocate across factors, or factor timing, has been an area of academic and practitioner research for decades. In this article, the authors revisit the promises of factor timing, documenting the historical linkages between equity factor performance and different groupings of predictors: sentiment, valuation, trend, economic conditions, and financial conditions. The authors highlight that different predictors are more relevant for certain horizons, so the horizon is critical in factor timing. They also argue there are significant pitfalls with factor timing as well. The difficulty of timing factors has been well documented, given the uncertainty of exogenous elements affecting their behavior and the complexity of the underlying relationships. Most importantly, the underlying causal links are time varying. In addition, these relationships are observed with the benefit of hindsight and thus suffer from the age-old problem of data mining. Despite these caveats, the authors believe that at the margin it is possible to time certain elements that can add value and improve outcomes.TOPIC: Factor-based models ER -