Factor investing in Brazil: Diversifying across factor tilts and allocation strategies

Alexandre Alles Rodrigues and Fabrizio Casalin
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Alexandre Alles Rodrigues: IESEG School of Management Lille

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Abstract: We employ a methodology to construct multi-beta multi-strategy (MBMS) indices for the Brazilian equity market that can diversify the exposure to multiple rewarded risk factors and unrewarded strategy-specific risks. We do so by considering as many as six risk factors, and five allocation strategies. Empirical results show that the MBMS indices so obtained outperform the cap-weighted benchmark index in both absolute and risk-adjusted terms. We also show that the same indices have a higher probability of outperforming the market than the individual multi-strategy factor indices, and that such outperformance is persistent over time.

Keywords: Factor Investing; Factor diversification; Model diversification; Strategy-specific risks; Double-layered diversification; Emerging equity market (search for similar items in EconPapers)
Date: 2022-09
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Published in Emerging Markets Review, 2022, 52, pp.100906. ⟨10.1016/j.ememar.2022.100906⟩

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Journal Article: Factor investing in Brazil: Diversifying across factor tilts and allocation strategies (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03968011

DOI: 10.1016/j.ememar.2022.100906

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