Boston QWAFAFEW Meeting: Tuesday, 21 Jul 2015 – Facts about Factors

Next Boston QWAFAFEW Meeting: Tuesday, 21 Jul 2015

 

Time: 6:15 PM sharpe
3rd Floor of the Tennis & Racquet Club, 939 Boylston Street

RSVP to hugh@QWAFAFEW.org

 

QWAFAFEW Mailing List

 

 

Facts about Factors

 

 

A QWAFAFEW discussion led by:

 

Megan Czasonis

 

Abstract

 

It has become fashionable to allocate portfolios to factors rather than to assets.  The often stated motivation for this approach is that factors are less correlated with each other than assets; therefore, factors afford greater opportunity for diversification.  This argument is specious, of course, because ultimately the portfolio must be invested in assets.  It is, therefore, impossible to produce a better in-sample portfolio by describing the portfolio as a set of factors than assets.  There are several potentially legitimate arguments, though, for favoring factor stratification over asset stratification.  It could be that factors are easier to forecast than assets, because investors are better able to relate current information to future factor behavior than to future asset behavior. Unfortunately, we have no way of testing this conjecture generically.  But there are several testable conjectures. Perhaps risk estimated from high-frequency returns predicts risk over longer horizons more reliably for factors than for assets.  Or the statistical properties of large samples may predict the statistical properties of small samples more reliably for factors than for assets.  Or, for the same sample size, the statistical properties of factors may be more stationary from one sample to the next than they are for assets. Finally, it may be that reducing the dimensionality of a large set of assets to a smaller set of factors reduces noise more effectively than reducing dimensionality to a smaller set of assets.  We offer empirical evidence of the validity, or lack thereof, of these testable conjectures.

 

Bio

 

Megan Czasonis is a Vice President for the Investment and Risk Research team at State Street Associates (SSA). The Investment and Risk Research team collaborates with academic partners to develop and implement new research on asset allocation, risk management, and investment strategy. The team delivers this research to institutional investors through customized advisory projects, investable product models, and web-based tools (GX Investment Labs).   

 

Megan leads product development for GX Investment Labs and collaborates regularly with several of SSA’s academic partners on key research areas including high-frequency inflation (PriceStats), risk management, and portfolio construction. Megan works closely with institutional investors to develop customized solutions based on this research and is a frequent presenter at industry conferences.

 

Megan joined SSA in 2009 after graduating Summa Cum Laude from Bentley University with a B.S. in Economics / Finance. Megan has passed all three levels of the CFA exam.

 

 

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Guests who do not RSVP may have to wait to enter the meeting, due to space constraints (capacity=100, BFD).

 

Guest fees ($30) can be paid through EMA (check or PayPal, bring receipt) or bitcoin (at address above). We still allow walk-ins (space permitting). The $30 guest fee can be paid by bitcoin, cash or check at the door, no credit cards at the meeting.

 

As always, if you have names or discussion topics, please forward them to any member of the Steerage Committee

 

Questions, comments:

 

 

Steerage Committee

Max Arai

Hugh Crowther (Treasurer)

Dan diBartolomeo

Steve Gaudette

Mark Kritzman

John Minahan

Donna Cool Murphy (Dinners)

Larry Pohlman

Dan Potter

Dan Rie

Evan Schulman

Michael Wilcox

 

The members of the Steerage Committee are responsible for coordinating the program content.

Program suggestions from members are always welcome..

 

RSVP to: hugh@QWAFAFEW.org

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