Optimal rebalancing strategies for efficient asset pricing factor investments
Lead Research Organisation:
Lancaster University
Department Name: Accounting & Finance
Abstract
Following the 2008 global financial crisis investors have faced a challenging investment environment
characterized by sustained low interest rates and ongoing periods of high or extreme market
volatility. Falling sovereign bond yields have driven up defined benefit liabilities and made it harder
for insurers and pension funds to meet target returns on guaranteed products. To remain compliant
with risk/return targets, many investors have structured their asset allocation to transparent and
individual risk factors.
In this low-yield environment, passive indexation products (which capture the market risk premium
with minimal transaction costs) are offered on a very low or no fee basis (other than custody). While
such products track the market, many investors seek excess returns by tilting their portfolio away
from the neutral capitalisation weights toward a factor of choice, e.g. small company stocks. With
low interest rates an efficient implementation of such offerings is key, especially helping
conservative investors like pension funds or insurers to not underperform their liability benchmarks.
While the latter would have dire consequences for the financial well-being of future generations,
there is little research into the design of optimal rebalancing strategies and the interplay with
transaction costs modelling. This research project is aimed at filling this gap by theoretically
investigating optimal rebalancing of various factor strategies and empirically devising transaction
cost models that aid and guide their practical implementation.
characterized by sustained low interest rates and ongoing periods of high or extreme market
volatility. Falling sovereign bond yields have driven up defined benefit liabilities and made it harder
for insurers and pension funds to meet target returns on guaranteed products. To remain compliant
with risk/return targets, many investors have structured their asset allocation to transparent and
individual risk factors.
In this low-yield environment, passive indexation products (which capture the market risk premium
with minimal transaction costs) are offered on a very low or no fee basis (other than custody). While
such products track the market, many investors seek excess returns by tilting their portfolio away
from the neutral capitalisation weights toward a factor of choice, e.g. small company stocks. With
low interest rates an efficient implementation of such offerings is key, especially helping
conservative investors like pension funds or insurers to not underperform their liability benchmarks.
While the latter would have dire consequences for the financial well-being of future generations,
there is little research into the design of optimal rebalancing strategies and the interplay with
transaction costs modelling. This research project is aimed at filling this gap by theoretically
investigating optimal rebalancing of various factor strategies and empirically devising transaction
cost models that aid and guide their practical implementation.
People |
ORCID iD |
Mark Shackleton (Primary Supervisor) | |
Alexander Swade (Student) |
Studentship Projects
Project Reference | Relationship | Related To | Start | End | Student Name |
---|---|---|---|---|---|
ES/P000665/1 | 01/10/2017 | 30/09/2027 | |||
2221012 | Studentship | ES/P000665/1 | 01/10/2019 | 30/09/2023 | Alexander Swade |