Factor Investing: Concepts, Insights and Applications

Thursday, July 2

09.00 - 09.10 Welcome and Introduction

09.10 - 12.30

Background

  • Factor investment ideas in context: from the CAPM to Smart Beta ETF products

Statistical Foundations

  • Review of the linear regression model: assumptions, limitations and important extensions
    • Handling non-linearity
    • Dummy variables
    • Updating regression parameters: the Kalman Filter
  • Factor analysis versus regression analysis
  • Links to approaches in Machine Learning, Artificial Intelligence, Big Data
  • Cross-section versus time-series regressions

12.30 - 13.30 Lunch

13.30 - 17.30

Statistical Factors

  • Understanding principal component analysis (PCA)
  • Limitations of PCA

Exercise: Modelling yield curve dynamics and identifying extreme yields scenarios

Fundamental Factors

  • Asset pricing and fundamental factors, factor-mimicking portfolios
  • Understanding the Fama/McBeth approach
  • Aspects of the Fama/French model for equities
  • Fama/French factors in bond markets

Exercise: Modelling the equity momentum factor

Friday, July 3

09.00 - 12.30

Macroeconomic Factors

  • Real and monetary macroeconomic factors
  • Leading/lagging indicators
  • General approaches to modelling macroeconomic variables

Exercise: Extracting common factors from macroeconomic data

Factor Investing Solutions

  • Factor investment ideas for funds: actively managed products, hedge fund strategies and rules-based ETFs
  • Factor indices and applications
  • Factors in portfolio construction
    • Optimizing factor inputs
    • Factor restrictions

12.30 - 13.30 Lunch

13.30 - 17.00

Factor in Performance and Risk Analysis

  • Factor-based performance and risk contributions and attribution effects
  • Distinguishing true alphas from hidden factor exposures
  • Monitoring and budgeting factor tilts
  • Ex ante absolute and relative portfolio risk decomposition

Exercise: Factor attribution of absolute and relative portfolio risk

Termination and Evaluation of the Seminar

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