Authors: Rei Yamamoto
Addresses: Faculty of Science and Technology, Keio University, 3-14-1 Hiyoshi, Kohoku-ku, Yokohama, 223-8522, Japan
Abstract: Recently, smart beta has become popular and its exchange-traded funds (ETFs) are now sold by asset management companies. Therefore, by using low-cost smart beta ETFs, we can easily conduct factor investing. We propose a market phase classification method based on market directions and cross-sectional volatility to explain the rates of return of smart beta indices and a conditional portfolio optimisation model to use the characteristics of these rates of return. Empirical analyses show that the proposed model achieves better performance than both the market index and a normal portfolio optimisation model used in Japanese and global markets.
Keywords: asset management; smart beta; factor investing; portfolio optimisation; conditional mean-absolute deviation model; market phase information.
International Journal of Portfolio Analysis and Management, 2021 Vol.2 No.3, pp.224 - 237
Received: 01 Feb 2019
Accepted: 02 May 2019
Published online: 04 Jun 2021 *