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Factor Timing in Asset Management: A Literature Review

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Hotze, S., Hachenberg, B., Schiereck, D. Factor Timing in Asset Management: A Literature Review. Credit and Capital Markets – Kredit und Kapital, 99999(), 1-50. https://doi.org/10.3790/ccm.2024.1454601
Hotze, Sebastian; Hachenberg, Britta and Schiereck, Dirk "Factor Timing in Asset Management: A Literature Review" Credit and Capital Markets – Kredit und Kapital 99999., 2024, 1-50. https://doi.org/10.3790/ccm.2024.1454601
Hotze, Sebastian/Hachenberg, Britta/Schiereck, Dirk (2024): Factor Timing in Asset Management: A Literature Review, in: Credit and Capital Markets – Kredit und Kapital, vol. 99999, iss. , 1-50, [online] https://doi.org/10.3790/ccm.2024.1454601
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Factor Timing in Asset Management: A Literature Review

Hotze, Sebastian | Hachenberg, Britta | Schiereck, Dirk

Credit and Capital Markets – Kredit und Kapital, Vol. (2025), Online First : pp. 1–50

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Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.2024.1454601
Language
English
Pages
50
Keywords

Author Details

Sebastian Hotze, Technical University Darmstadt, Hochschulstraße 1, 64289 Darmstadt, Germany.

Prof. Dr. Britta Hachenberg, TH Köln, Claudiusstr. 1, 50678 Köln, Germany.

Prof. Dr. Dirk Schiereck, Technical University Darmstadt, Hochschulstraße 1, 64289 Darmstadt, Germany.

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Abstract

While static factor-based investing is nowadays a common way of allocating portfolios, the next step, a dynamic progression towards time-varying components and factor cyclicity, is still far less established. This study offers a survey on the state of the art of factor timing in asset management and presents the main approaches discussed in the finance literature as well as empirical evidence on the performance of factor timing investment strategies. It becomes obvious that factor timing is much older than first assumed and that there is a diverse collection of approaches. In addition, empirical results on the economic benefits are conflicting. On the one hand, factor timing has the potential to generate economic wealth for long-term oriented institutional investors. On the other hand, high turnover and high transaction costs might limit returns. Furthermore, available data and literature are scarce, leading to challenges in comparing studies. These different perspectives are driving the debate in the finance literature.

Table of Contents

Section Title Page Action Price
Sebastian Hotze / Britta Hachenberg / Dirk Schiereck: Factor Timing in Asset Management: A Literature Review 1
Abstract 1
I. Introduction 1
II. Prediction of Expected Returns 3
III. Models and Portfolio Allocation 4
1. Evolution of Asset Pricing Models 5
2. Factor Investing: Strategies and Time-Variability 7
IV. Factor Timing Strategy 9
1. Timing Indicators 11
a) Macro Factors and the Business Cycle 11
b) Market Sentiment 13
c) Momentum 16
2. Factor Timing 17
a) Active Strategy 17
b) Defensive Strategy 19
c) Combining Factors and Models 21
d) Machine Learning 23
3. Problems and Pitfalls 25
4. Conclusion of Factor Timing 26
V. Literature Research 27
1. Approach 28
2. Literature Landscape 28
3. Results 34
a) Leading Questions 34
b) Further Findings 36
4. Critical Evaluation 37
VI. Conclusion 38
Appendix A 40
Appendix B 42
Modularity algorithm report 42
Appendix C 43
Network Analysis 43
References 44

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