Targeting Macroeconomic Exposures in Equity Portfolios: A Firm-Level Measurement Approach for Out-of-Sample Robustness

Mikheil Esakia and Felix Goltz

Financial Analysts Journal, 2023, vol. 79, issue 1, 37-57

Abstract: We propose firm-level measures of exposures to macroeconomic risks that substantially improve out-of-sample robustness compared to standard estimation approaches. Systematic equity strategies constructed from such measures offer more consistent macro exposures out of sample than strategies that allocate across sectors or equity-style factors. We do not find significant cost to the performance of such systematic strategies in exchange for targeting exposures to macroeconomic risks, such as interest rates, term spread, credit spread, or inflation. Our methodology can be used to construct equity portfolios for investors who have hedging demands or active views regarding macroeconomic conditions.

Date: 2023
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DOI: 10.1080/0015198X.2022.2150500

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