Optimal Factor Timing in a High-Dimensional Setting
Year: 2025
Type: article
Abstract: We develop a framework for equity factor timing in a high-dimensional setting when the number of factors and factor return predictors can be large. To ensure good out-of-sample performance, the approach is disciplined by shrinkage that effectively expresses a degree of skepticism about outsized gains from timing. In our empirical application, the predictors include macroeconomic variables and factor-specific characteristics spreads between the long and short legs of the factors. We find sizable gains from timing equity factors, including for factors constructed only from large-cap stocks.
Source: Financial Analysts Journal
Authors: Rob Lehnherr, Manan Mehta, Stefan Nagel
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W4408904212