Factor attribution that adds up

Sanne de Boer ()
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Sanne de Boer: QS Investors

Journal of Asset Management, 2012, vol. 13, issue 6, No 2, 373-383

Abstract: Abstract Existing implementations of factor attribution only explain part of a quantitatively managed portfolio's return, even when factor models are all that is behind the investment strategy. We propose an alternative method that aligns stock-specific risk in how exposure to factors is taken in the portfolio with how their performance is measured, thus making factor attribution ‘add up’. As part of developing this framework, we show how bounds on asset weights and industry exposures in mean-variance optimization implicitly protect against model risk.

Keywords: quantitative investing; factor attribution; shrinkage estimators (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1057/jam.2012.21

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