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Seminar 217, Risk Management: Systematic Long/Short Factor Portfolios

Seminar: Risk Seminar | April 18 | 11 a.m.-1 p.m. | 639 Evans Hall


Speaker: James Lewis, State Street Global Advisors

Center for Risk Management Research


Abstract:
We consider a panel of 88 "systematic factors": simple, quantitative procedures that assign scores to a universe of assets using publicly available data. For each factor, we construct idealized daily factor portfolios (long/short, market-neutral) and daily return series for the 16-year period between January 2001 and December 2016. Each of the factor return series has positive sample mean, and for all but twelve, the one-sided t-test rejects the zero-mean hypothesis at the 95% confidence level. Moreover, for the full sample, the factors are nearly uncorrelated, and when we partition the factors into nine clusters by asset class and market, equally weighting within each cluster, the p-value for each cluster is less than 0.0001. The cluster returns are again nearly uncorrelated in the full sample, and the return distribution for each cluster exhibits positive skew. We also verify that the cluster returns are essentially uncorrelated with various market benchmarks, and perhaps more surprisingly, with a panel of "style factor" returns provided by a third-party vendor.


jschellenberg@berkeley.edu