Tactical Style Allocation – A New Form of Market Neutral Strategy

Noël Amenc, Philippe Malaise, Lionel Martellini, Daphné Sfeir: Even though there is little evidence of predictability in stock specific risk, most equity market neutral managers still rely on stock picking as the preferred way to generate abnormal returns.

Author(s):

Noel Amenc

Professor of Finance, EDHEC Graduate School of BusinessHead of Research, Misys Asset Management Systems

Philippe Malaise

Research Associate, EDHEC Risk and Asset Management Research Centre

Lionel Martellini

Professor of Finance, EDHEC Graduate School of Business

Daphne Sfeir

Senior research engineer, EDHEC Risk and Asset Management Research Centre

In this paper, we document the benefits of a new form of market-neutral portfolio strategy that aims at delivering absolute return over the full business cycle through systematic equity style timing decisions. Using a robust multi-factor recursive modelling approach, we find strong evidence of predictability in value and size style differentials. We use these econometric forecasts to generate systematic style timing allocation decisions. These portfolio decisions can be implemented using Exchange Traded Funds on US style indexes.

Type: Working paper
Date: le 01/01/2003
Research Cluster : Finance

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