Factor-based Investing: Analysing market anomalies in the US equity market

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dc.contributorAalto Universityen
dc.contributorAalto-yliopistofi
dc.contributor.advisorWallenius, Jyrki
dc.contributor.authorIlvonen, Antti
dc.contributor.departmentTieto- ja palvelujohtamisen laitosfi
dc.contributor.schoolKauppakorkeakoulufi
dc.contributor.schoolSchool of Businessen
dc.date.accessioned2019-07-21T16:03:15Z
dc.date.available2019-07-21T16:03:15Z
dc.date.issued2019
dc.description.abstractPassive investment strategies can be improved by statistically sorting the market based on various metrics known as factors. By only buying top securities of the market based on the sorting factor, the portfolio can generate higher returns while still maintaining high diversification. I found that two factors, value (sort based on book value to market value -ratio) and momentum (sort based on past performance), generated stable and statistically significant excess-returns based on data from 1926 to 2018. The aim of this study was to evaluate the factors’ past performance and to provide logical reasons for their persistence in the future. Key challenge to using factor sorting in investing is the risk of market pricing the excess-returns out. However, I provide evidence that release of new information has not led to significantly smaller factor returns. Also, I note that slow rebalancing of portfolio betas can explain part of the poor performance of momentum strategies during economic downturns. Furthermore, I analyzed volatilities of portfolios combining both factors with the market portfolio and found that diversifying investment portfolio over multiple sources of risk increases risk-adjusted returns.en
dc.format.extent38
dc.format.mimetypeapplication/pdfen
dc.identifier.urihttps://aaltodoc.aalto.fi/handle/123456789/39323
dc.identifier.urnURN:NBN:fi:aalto-201907214385
dc.language.isoenen
dc.programmeTieto- ja palvelujohtaminenen
dc.subject.keywordfactor investingen
dc.subject.keywordmomentumen
dc.subject.keywordvalueen
dc.subject.keywordportfolio managementen
dc.subject.keyworddiversificationen
dc.titleFactor-based Investing: Analysing market anomalies in the US equity marketen
dc.typeG1 Kandidaatintyöfi
dc.type.ontasotBachelor's thesisen
dc.type.ontasotKandidaatintyöfi
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