Back to Basics on Factor-based Risk Management
“Our results show that predicted betas consistently outperform historically estimated betas in hedging effectiveness, that short-to-medium lookback windows of one to two years are generally optimal, and that the full framework is accessible to any practitioner with standard computational tools.”
AssetEquities
StrategyHedgingfactor investing
TechniqueLinear factor model
Sample window2004–2024
Also stated: Excess return, t-statistic
Missing from abstract: benchmark, out-of-sample test, costs, multiple testing, universe
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The paper's neighbourhoodHedging strategies by year
FamilyHedging strategies20Momentum and trend following289Factor investing240Machine learning return prediction15318 more · 982
AssetEquities10
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