RT Journal Article
SR Electronic
T1 Business Cycle–Related Timing of Alternative Risk Premia Strategies
JF The Journal of Alternative Investments
FD Institutional Investor Journals
SP jai.2020.1.091
DO 10.3905/jai.2020.1.091
A1 Bernd Scherer
A1 Matthias Apel
YR 2020
UL https://pm-research.com/content/early/2020/02/19/jai.2020.1.091.abstract
AB Time variation in risk premia is not a violation of market efficiency but rather a reflection of time-varying economic rewards. By analyzing macroeconomic sensitivities (proxying for good and bad times), the authors show that time-varying returns of certain alternative risk premia strategies are significantly related to economic conditions. On the basis of identified return patterns, the authors construct a risk premia timing strategy that adds statistically significant marginal performance with low turnover. They confront data mining concerns by successfully cross validating their model across various investment universes.TOPICS: Analysis of individual factors/risk premia, real assets/alternative investments/private equityKey Findings• The authors show that the returns of certain alternative risk premia strategies are statistically significant related to economic conditions.• Evidence provided give no indication that the documented performance patterns are driven by underlying beta exposure.• Given the observed macroeconomic sensitivities the authors construct a risk premia timing strategy that add marginal performance with low turnover to a risk-parity portfolio.