How Do Factor Premia Vary Over Time? A Century of Evidence

55 Pages Posted: 17 Jun 2019 Last revised: 24 Feb 2021

See all articles by Antti Ilmanen

Antti Ilmanen

AQR Capital Management

Ronen Israel

AQR Capital Management, LLC

Tobias J. Moskowitz

Yale University, Yale SOM; AQR Capital; National Bureau of Economic Research (NBER)

Ashwin K Thapar

AQR Capital Management, LLC

Rachel Lee

Vice President

Date Written: February 18, 2021

Abstract

Evaluating how factor premia vary over time and across asset classes is challenging due to limited time series data, especially outside of U.S. equities. We examine four prominent factors across six asset classes over a century. We find little evidence for arbitrage activity influencing returns, though some novel evidence of overfitting biases. We identify meaningful time variation in factor risk-adjusted returns that appears unrelated to macroeconomic risks, supporting other theories of dynamic return premia. Attempting to capture this variation, we evaluate various factor timing strategies, but find relatively modest predictability that likely fails to overcome implementation frictions.

Keywords: Factor premia, factor timing, multi-asset class, overfitting bias, arbitrage activity

JEL Classification: G11, G15

Suggested Citation

Ilmanen, Antti S. and Israel, Ronen and Moskowitz, Tobias J. and Thapar, Ashwin K and Lee, Rachel, How Do Factor Premia Vary Over Time? A Century of Evidence (February 18, 2021). Available at SSRN: https://ssrn.com/abstract=3400998 or http://dx.doi.org/10.2139/ssrn.3400998

Antti S. Ilmanen

AQR Capital Management ( email )

United Kingdom
+447887475184 (Phone)

Ronen Israel

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Tobias J. Moskowitz (Contact Author)

Yale University, Yale SOM ( email )

New Haven, CT 06520
United States

HOME PAGE: http://som.yale.edu/tobias-j-moskowitz

AQR Capital ( email )

Greenwich, CT
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ashwin K Thapar

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Rachel Lee

Vice President ( email )

Greenwich, CT
United States

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