Equity style allocation: A nonparametric approach

Mohan Subbiah () and Frank Fabozzi ()

Journal of Asset Management, 2016, vol. 17, issue 3, No 2, 164 pages

Abstract: Abstract In this article we provide a framework to assist with style allocation in Asian equity funds. We implement a nonparametric methodology to capture short-term stable time-varying relationships of otherwise long-term unstable relationships between numerous macroeconomic variables and style returns. We find that a nonparametric forecasting methodology produces positive performance after allowing for transaction costs, while the equivalent parametric forecasts are negative. The model can be implemented through tilting a funds style exposure to enhance performance. Even in the context of a long-only fund, the style exposures of the proposed model can be implemented as long–short exposures relative to a benchmark. Because the model is presented as a self financing market-neutral model, its implementation can be leveraged directly in a market-neutral fund or indirectly as (leveraged) style exposures in a long-only fund.

Keywords: style allocation; nonparametric regression; market-neutral fund; long-only fund; Asian equity markets (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1057/jam.2016.1

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