Abstract
Everyone seems to want to time factors. Often the first question
after an initial discussion of factors is “ok, what’s the current
outlook?” And the common answer, “the same as usual,” is often
unsatisfying. There is powerful incentive to oversell timing ability.
Factor investing is often done at fees in between active management and
cap-weighted indexing and these fees have been falling over time. Factor
timing has the potential of reintroducing a type of skill-based “active
management” (as timing is generally thought of this way) back into the
equation. I think that siren song should be resisted, even if that
verdict is disappointing to some. At least when using the simple “value”
of the factors themselves, I find such timing strategies to be very
weak historically, and some tests of their long-term power to be
exaggerated and/or inapplicable.
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