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Factor Investing and Asset Allocation: A Business Cycle Perspective

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This monograph draws heavily on the vast body of knowledge that has been built by financial economists over the last 50 years. Its goal is to show how to solve real‐life portfolio allocation problems. We have found that using a broad range of models works best. Also, we prefer simple over complex models. We believe that simplicity and modularity lend substantial robustness to investment analysis. Importantly, the framework presented provides several of the “missing links” in asset allocation—for example, the links between asset classes and risk factors, between macroeconomic views and expected returns, and ultimately between quantitative and fundamental investing.

About the Author(s)

Vasanttilak Naik

Vasanttilak Naik is an executive vice president and global head of empirical research for the portfolio management analytics group at PIMCO. Previously, he was managing director and head of the quantitative strategies group in fixed-income research at Nomura International. Dr. Naik also worked at Lehman Brothers and served as a faculty member in finance at the Sauder School of Business at the University of British Columbia. He holds a bachelor of commerce degree from Gujarat University, a postgraduate diploma in management from the Indian Institute of Management, and a PhD in finance from the University of California, Berkeley.

Mukundan Devarajan
Andrew Nowobilski
Sébastien Page CFA

Sébastien Page, CFA, is senior managing director and head of the Portfolio and Risk Management Group at State Street Associates/State Street Global Markets. Previously, Mr. Page worked at CDP Capital. In 2000, he won first prize in the Montreal CFA Society–August Hagedorn Contest for his research on value at risk. In 2002, he won the Quebec Financial Industry honorable mention in the Young Professional of the Year category, and in 2003, he won the Bernstein Fabozzi/Jacobs Levy Award for Best Article in the "Journal of Portfolio Management". He has also published articles in the "Journal of Asset Management", the "Journal of Investing, and the "Canadian Investment Review". Mr. Page is a frequent speaker at various academic and practitioner conferences. He holds an MSc in finance from Sherbrooke University in Canada.

Niels Pedersen