Factor-Targeted Asset Allocation: A Reverse Optimization Approach

References

• Aliaga-Diaz, R., G. Renzi-Ricci, A. Daga, and H. Ahluwalia. 2020. “Portfolio Optimization with Active, Passive, and Factors: Removing the Ad Hoc Step.” The Journal of Portfolio Management 46 (4):39–51. doi:10.3905/jpm.2020.1.127.
   Web of Science ®Google Scholar
• Amato, Livia, and Harald Lohre. 2020. “Diversifying Macroeconomic Factors—for Better or for Worse.” SSRN. https://ssrn.com/abstract=3730154 or http://dx.doi.org/10.2139/ssrn.3730154
   Google Scholar
• Amenc, Noël, Mikheil Esakia, Felix Goltz, and Ben Luyten. 2019. “Macroeconomic Risks in Equity Factor Investing.” The Journal of Portfolio Management 45 (6): 39–60. doi:10.3905/jpm.2019.1.092.
   Web of Science ®Google Scholar
• Ang, A. 2014. Asset Management: A Systematic Approach to Factor Investing. Oxford, UK: Oxford University Press.
   Google Scholar
• Bass, R., S. Gladstone, and A. Ang. 2017. “Total Portfolio Factor, Not Just Asset, Allocation.” The Journal of Portfolio Management 43 (5): 38–53. doi:10.3905/jpm.2017.43.5.038.
   Web of Science ®Google Scholar
• Bender, J., J. Le Sun, and R. Thomas. 2018. “Asset Allocation vs. Factor Allocation—Can We Build a Unified Method?” The Journal of Portfolio Management 45 (2): 9–22. doi:10.3905/jpm.2018.45.2.009.
   Web of Science ®Google Scholar
• Bergeron, A., M. Kritzman, and G. Sivitsky. 2018. “Asset Allocation and Factor Investing: An Integrated Approach.” The Journal of Portfolio Management 44 (4): 32–8. doi:10.3905/jpm.2018.44.4.032.
   Web of Science ®Google Scholar
• Bessler, Wolfgang, Georgi Taushanov, and Dominik Wolff. 2021. “Factor Investing and Asset Allocation Strategies: A Comparison of Factor Versus Sector Optimization.” Journal of Asset Management 22 (2021): 488–506.
   Web of Science ®Google Scholar
• Best, M. J., and R. R. Grauer. 1991. “On the Sensitivity of Mean-Variance-Efficient Portfolios to Changes in Asset Means: Some Analytical and Computational Results.” Review of Financial Studies 4 (2): 315–42. doi:10.1093/rfs/4.2.315.
   Web of Science ®Google Scholar
• Black, F. 1993. “Estimating Expected Return.” Financial Analysts Journal 49 (5): 36–8. doi:10.2469/faj.v49.n5.36.
   Google Scholar
• Britten-Jones, M. 1999. “The Sampling Error in Estimates of Mean-Variance Efficient Portfolio Weights.” The Journal of Finance 54 (2): 655–71. doi:10.1111/0022-1082.00120.
   Web of Science ®Google Scholar
• Clarke, R., H. De Silva, and S. Thorley. 2016. “Fundamentals of Efficient Factor Investing.” Financial Analysts Journal 72 (6): 9–26. doi:10.2469/faj.v72.n6.3.
   Web of Science ®Google Scholar
• DeMiguel, V., L. Garlappi, and R. Uppal. 2009. “Optimal Versus Naive Diversification: How Inefficient is the 1/N Portfolio Strategy?” Review of Financial Studies 22 (5): 1915–53. doi:10.1093/rfs/hhm075.
   Web of Science ®Google Scholar
• Elkamhi, Redouane, Jacky S. H. Lee, and Marco Salerno. 2021. “Factor Investing Using Capital Market Assumptions.” The Journal of Portfolio Management 48 (2): 119–43. doi:10.3905/jpm.2021.1.291.
   Web of Science ®Google Scholar
• Esakia, Mikheil, and Felix Goltz. 2023. “Targeting Macroeconomic Exposures in Equity Portfolios: A Firm-Level Measurement Approach for out-of-Sample Robustness.” Financial Analysts Journal 79 (1): 37–57. doi:10.1080/0015198X.2022.2150500.
   Web of Science ®Google Scholar
• Fabozzi, F. J. 2020. “Editor’s Introduction for 2021 Special Issue on Factor Investing.” The Journal of Portfolio Management 47 (2): 1–3. doi:10.3905/jpm.2020.47.2.001.
   Web of Science ®Google Scholar
• Fama, E. F., and J. D. MacBeth. 1973. “Risk, Return, and Equilibrium: Empirical Tests.” Journal of Political Economy 81 (3): 607–36. doi:10.1086/260061.
   Web of Science ®Google Scholar
• Fan, J., Y. Fan, and J. Lv. 2008. “High Dimensional Covariance Matrix Estimation Using a Factor Model.” Journal of Econometrics 147 (1): 186–97. doi:10.1016/j.jeconom.2008.09.017.
   Web of Science ®Google Scholar
• Gladstone, S., A. Madhavan, A. Rana, and A. Ang. 2021. “Macro Factor Model: Application to Liquid Private Portfolios.” The Journal of Portfolio Management 47 (5): 72–90. doi:10.3905/jpm.2021.1.231.
   Web of Science ®Google Scholar
• Greenberg, D., A. Babu, and A. Ang. 2016. “Factors to Assets: Mapping Factor Exposures to Asset Allocations.” The Journal of Portfolio Management 42 (5): 18–27. doi:10.3905/jpm.2016.42.5.018.
   Web of Science ®Google Scholar
• Hansen, Lars Peter, and Ravi Jagannathan. 1997. “Assessing Specification Errors in Stochastic Discount Factor Models.” The Journal of Finance 52 (2): 557–90. doi:10.1111/j.1540-6261.1997.tb04813.x.
   Web of Science ®Google Scholar
• Idzorek, Thomas M., and Maciej Kowara. 2013. “Factor-Based Asset Allocation vs. Asset-Class-Based Asset Allocation.” Financial Analysts Journal 69 (3): 19–29. doi:10.2469/faj.v69.n3.7.
   Web of Science ®Google Scholar
• Kan, R., and G. Zhou. 2007. “Optimal Portfolio Choice with Parameter Uncertainty.” Journal of Financial and Quantitative Analysis 42 (3): 621–56. doi:10.1017/S0022109000004129.
   Web of Science ®Google Scholar
• Kolm, P. N., and G. Ritter. 2020. “Factor Investing with Black–Litterman–Bayes: Incorporating Factor Views and Priors in Portfolio Construction.” The Journal of Portfolio Management 47 (2): 113–26. doi:10.3905/jpm.2020.1.196.
   Web of Science ®Google Scholar
• Lintner, J. 1965. “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets.” The Review of Economics and Statistics 47 (1): 13–37. http://www.jstor.org/stable/1924119
   Google Scholar
• Maillard, Sébastien, Thierry Roncalli, and Jérôme Teïletche. 2010. “The Properties of Equally Weighted Risk Contribution Portfolios.” The Journal of Portfolio Management 36 (4): 60–70. doi:10.3905/jpm.2010.36.4.060.
   Web of Science ®Google Scholar
• Michaud, R. O. 1989. “The Markowitz Optimization Enigma: Is ‘Optimized’ Optimal?” Financial Analysts Journal 45 (1): 31–42. doi:10.2469/faj.v45.n1.31.
   Google Scholar
• Pástor, Ľuboš, and Robert F. Stambaugh. 2000. “Comparing Asset Pricing Models: An Investment Perspective.” Journal of Financial Economics 56 (3): 335–81. doi:10.1016/S0304-405X(00)00044-1.
   Web of Science ®Google Scholar
• Ross, S. 1976. “The Arbitrage Theory of Capital Asset Pricing.” Journal of Economic Theory 13 (3): 341–60. doi:10.1016/0022-0531(76)90046-6.
   Web of Science ®Google Scholar
• Shanken, Jay. 1987. “Multivariate Proxies and Asset Pricing Relations: Living with the Roll Critique.” Journal of Financial Economics 18 (1): 91–110. doi:10.1016/0304-405X(87)90062-6.
   Web of Science ®Google Scholar
• Sharpe, W. F. 1964. “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.” The Journal of Finance 19 (3): 425–42. doi:10.2307/2977928.
   Web of Science ®Google Scholar
• Swade, A., H. Lohre, M. Shackleton, S. Nolte, S. Hixon, and J. Raol. 2021. “Macro Factor Investing with Style.” The Journal of Portfolio Management 48 (2): 80–104. doi:10.3905/jpm.2021.1.306.
   Web of Science ®Google Scholar
• Tu, J., and G. Zhou. 2011. “Markowitz Meets Talmud: A Combination of Sophisticated and Naive Diversification Strategies.” Journal of Financial Economics 99 (1): 204–15. doi:10.1016/j.jfineco.2010.08.013.
   Web of Science ®Google Scholar