PT  - JOURNAL ARTICLE
AU  - Keith L. Miller
AU  - Hong Li
AU  - Tiffany G. Zhou
AU  - Daniel Giamouridis
TI  - A Risk-Oriented Model for Factor Timing Decisions
AID  - 10.3905/jpm.2015.41.3.046
DP  - 2015 Apr 30
TA  - The Journal of Portfolio Management
PG  - 46--58
VI  - 41
IP  - 3
4099  - https://pm-research.com/content/41/3/46.short
4100  - https://pm-research.com/content/41/3/46.full
AB  - Alpha factors are built to perform well over time, on average. There are instances when they do not, and knowing these instances ex ante can be a significant source of added value for investors. The authors argue that factor failure is a function of its broad risk, and propose appropriate variables to measure it. They adopt a nonparametric model that predicts instances of likely factor failure, based on these variables, demonstrating that an implementable dynamic strategy based on our analysis generates a reward-to-risk ratio approximately four times that of a static approach, and about one and a half times that of an alternative dynamic approach based on momentum.TOPICS: Factor-based models, risk management