Abstract
In this article, the authors show the benefits of a factor premia overlay to an intertemporal wealth accumulation strategy that is fully invested in global equities. Their simulation results suggest that wealth accumulation is significantly enhanced by a time invariant, equal-weighted allocation to conventional factor premia. The enhancement is driven in part by the mean return of the premia but, more importantly, by their generally positive payoff in adverse market environments. The authors estimate the value of downside protection provided by premia in this context and show that it is economically important. Factor-premia-based strategies provide a challenge to skill-based asset allocation strategies that aim to tactically shift the portfolio’s exposure to market risk and highlight the multiperiod importance of style management. <b>TOPICS:</b>Analysis of individual factors/risk premia, portfolio construction, emerging, risk management
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