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Dimitris Melas

Dimitris Melas

Managing Director, MSCI Research

Dimitris Melas is responsible for equity research and strategic product development across both equity indexes and equity analytics. Dimitris leads a global team of research specialists. Prior to joining MSCI in 2006, Dimitris worked at HSBC Asset Management as Head of Research and Head of Quantitative Strategies. He is a Chartered Financial Analyst and holds an MSc in Electrical Engineering, an MBA in Finance, and a PhD in Applied Probability from the London School of Economics. He has published research papers in peer-reviewed journals and serves as Editorial Board Member of the Journal of Portfolio Management.

Research and Insights

Articles by Dimitris Melas

    The Future of Factor Investing

    Research Report | Jan 7, 2022 | Dimitris Melas

    We discuss three trends shaping the future of factor investing: continued evolution of traditional factor models, innovation in data sources and modeling and the potential disruption of integrating factor strategies into the asset-allocation process.

    Factor Allocation Model: Integrating Factor Models and Strategies into the Asset Allocation Process

    Research Report | Apr 14, 2021 | Dimitris Melas

    Factors are the underlying forces that drive portfolio risk and performance over different investment horizons.

    Investor Reaction to US Elections and COVID-Vaccine Progress

    6 mins read Blog | Nov 18, 2020 | Dimitris Melas , David Lunsford , Andy Sparks

    To gauge investor expectations after Joe Biden was declared winner of the U.S. election and good news broke about COVID vaccines, we surveyed 151 U.S.-based financial advisers. We examine the advisers’ views on the next 12 months and markets’ reaction since Election Day.

    Five lessons for investors from the COVID-19 crisis

    Blog | May 19, 2020 | Dimitris Melas

    COVID-19 unleashed a torrent of sharp movements across global financial markets. We highlight five key lessons for investors regarding global investing, managing factors, active management, indexed investing and ESG investing.

    Five Lessons for Investors From the COVID-19 Crisis

    Research Report | May 19, 2020 | Dimitris Melas , Navneet Kumar , Zoltán Nagy , Roman Kouzmenko

    The coronavirus pandemic sparked a surge of volatility across global financial markets. What lessons could investors draw from the COVID-19 crisis? In this paper, we present and discuss empirical evidence supporting five key lessons for investors regarding global investing, managing factors, active management, indexed investing and ESG investing.

    Coronavirus and oil hit equities — how low can we go?

    Blog | Mar 12, 2020 | Dimitris Melas

    We compare the market turmoil sparked by the coronavirus pandemic with levels of volatility, drawdown and recovery after 9/11 and the global financial crisis (the two other similarly severe economic and market shocks of the last 20 years).

    The state of global investing

    Blog | Nov 12, 2019 | Dimitris Melas

    Financial markets are inherently unpredictable, while structural forces such as shifts in monetary policy, trade conflicts and climate change compound the challenges facing investors. Read our analysis commissioned by Norway’s Ministry of Finance.

    Lessons from Woodford: Shutting the barn door after the horses have bolted

    Blog | Jun 14, 2019 | András Bohák , Dimitris Melas , Roman Kouzmenko

    The suspension of the U.K.’s Woodford Equity Income Fund highlights the value of regularly reviewing a portfolio’s factor exposures and liquidity characteristics for signs of style drift or deteriorating ability to redeem shares.

    The Growth-Factor Premium: Seeking a Systematic Approach for Capturing It

    Research Report | Jun 5, 2019 | Mehdi Alighanbari , Dimitris Melas , Shubhangi Sharma

    While used extensively by active managers as part of their security-selection decisions, the growth factor has been largely left out of the factor-index investing landscape, at least in its simplest form. This paper explores why and offers a way to capture this factor with a systematic, rules-based approach.

    Integrating Factors in Market Indexes and Active Portfolios

    Research Report | Nov 8, 2018 | Dimitris Melas , Navneet Kumar , Zoltán Nagy , Peter Zangari

    Asset owners use indexes as policy benchmarks and reference portfolios in their asset allocation. Index investors track cap-weighted indexes that seek to capture the market return. 

    How can active managers add factors to the portfolio?

    Blog | Oct 2, 2018 | Dimitris Melas

    Discretionary managers use fundamental analysis to select stocks and construct portfolios that seek to beat the market. These managers face substantial headwinds in the current environment. From a business perspective, they are under pressure to reduce cost and improve performance. The market environment has also been challenging, as high correlations between stocks and the dominance of a handful of large technology companies have made it harder to generate alpha from stock selection.

    Why is Tesla a Short-Selling Target?

    Blog | Aug 13, 2018 | Dimitris Melas , George Bonne

    Elon Musk, founder and CEO of Tesla, suggested in a series of tweets that going private could help Tesla avoid the scrutiny of quarterly reporting and pressure from short selling. Do companies targeted by short sellers share common characteristics? Could factor analysis help investors identify stocks that may become short-selling targets?

    Foundations of ESG Investing – Part 4: Integrating ESG into Factor Strategies and Active Portfolios

    Research Report | Jun 7, 2018 | Dimitris Melas , Linda-Eling Lee , Laura Nishikawa , Zoltán Nagy , Guido Giese

    How can ESG characteristics be integrated consistently across factor-based and active equity allocations? In Part 4 of the Foundations of ESG Investing paper, we discuss two approaches to applying ESG ratings to factor-based allocations – a one-step and a two-step approach – asking which has done a better job at combining the underlying strategy with ESG while maintaining exposure to target factors. We then investigate overlaying ESG ratings and ESG momentum on the historical holdings of...

    Foundations of ESG Investing – Part 3: Integrating ESG into Indexed Institutional Portfolios

    Research Report | May 16, 2018 | Dimitris Melas , Linda-Eling Lee , Laura Nishikawa , Zoltán Nagy , Guido Giese

    According to recent surveys, asset owners’ have shifted their main focus to ESG’s financial benefits, as opposed to social benefits. In the third part of this paper, we discuss how ESG can be integrated into indexed allocations using MSCI ESG Ratings, which provided better risk-adjusted returns from August 2010 to December 2017 than the MSCI ACWI Index. We used existing best-in-class selection-based index methodologies (the MSCI ESG Leaders Index) for the creation of hypothetical global and...

    How Can Active Managers Put ESG to Work?

    Blog | May 15, 2018 | Dimitris Melas

    Our research shows how favorable ESG characteristics have historically had a positive impact on equity valuation, risk and performance. But many active managers may have concerns that using ESG data could disrupt their investment process and introduce unintended biases to the portfolio.

    Why index funds promote market efficiency

    Blog | Apr 26, 2018 | Dimitris Melas

    Institutions and individuals increasingly invest through funds that track indexes. While index funds bring transparency and low cost, their critics claim that they allocate capital indiscriminately, hurting market efficiency. Is this claim supported by the evidence? It is not. Our analysis shows that, far from damaging market efficiency, index funds1 facilitate active portfolio management by offering investors diverse and efficient tools to express investment views and implement active...

    Putting the spotlight on Spotify: Why have stocks with unequal voting rights outperformed?

    Blog | Apr 3, 2018 | Dimitris Melas

    Nearly 15 years after Google’s initial public offering, the debate about listed companies that offer unequal voting rights to outside investors rages on. A number of high-profile technology companies including Dropbox Inc., Spotify and Snap Inc. have recently listed shares with unequal voting rights, adding fuel to the debate. Meanwhile, investors are trying to determine if they should shun the stock issued by these companies or include them in equity portfolios.

    Do Factors Stand Up to FAANG?

    Blog | Feb 21, 2018 | Dimitris Melas

    Large U.S. technology companies, the so-called FAANG, dominated the U.S. stock market in the last few years and had a significant impact on many investment strategies. These companies have been underrepresented in most factor-based strategies due to their unattractive factor characteristics. Have factor investors suffered from not investing in these stocks?

    Dissecting the Stock Market Sell-Off

    Blog | Feb 6, 2018 | Dimitris Melas

    Growing fears about rising inflation and interest rates sparked a decline across equity markets in the last few days.

    Introducing MSCI FaCS

    Research Report | Jan 18, 2018 | Dimitris Melas , George Bonne , Leon Roisenberg , Subramanian Aylur

    Factors are important systematic sources of risk and return in equity portfolios. Given the pervasive use of factors via both active and indexed strategies, a standard approach is needed for defining factors and evaluating the factor characteristics of portfolios. We introduce MSCI FaCS, a classification standard and framework for analyzing and reporting of style factors in equity portfolios that is based on the Barra Global Total Market Equity Model for Long-Term Investors. Managers can use...

    Foundations of ESG Investing – Part 1: How ESG Affects Equity Valuation, Risk and Performance

    Research Report | Nov 29, 2017 | Dimitris Melas , Linda-Eling Lee , Laura Nishikawa , Zoltán Nagy , Guido Giese

    Many studies have focused on the relationship between companies with strong ESG characteristics and corporate financial performance.  However, these have often struggled to show that positive correlations — when produced — can in fact explain the behavior. This paper provides a  link between ESG information and the valuation and performance of companies, both through their systematic risk profile (lower costs of capital and higher valuations) and their idiosyncratic risk profile...

    Are Market Valuations in Nosebleed Territory?

    Blog | Aug 22, 2017 | Dimitris Melas

    Markets have enjoyed a relatively long period of positive returns and low volatility, making some investors wonder if a correction is imminent. One possible trigger for a correction would be investors concluding that market valuations have become extreme, which could lower future returns.

    Bridging the gap: Adding factors to indexed and active allocations

    Research Report | May 2, 2017 | Dimitris Melas , Anil Rao , Subramanian Aylur

    Asset owners face a challenge in determining how the factor allocation fits into the overall equity program, in particular how the factor allocation relates to the existing roster of active managers. This paper uses a risk budgeting framework to investigate how active mandates and factor allocations can be combined. We address three key questions: 1) how does the level of active risk in active management affect the factor allocation decision, 2) what share of the portfolio can be deployed to...

    Integrating ESG into Factor Portfolios

    Blog | Nov 30, 2016 | Dimitris Melas

    Over the past decade, many long-term institutional investors have incorporated Environmental, Social and Governance (ESG) considerations into their portfolios, by creating segregated ESG mandates or by incorporating ESG criteria across the entire portfolio.

    Factor Investing and ESG Integration

    Research Report | Nov 30, 2016 | Dimitris Melas , Zoltán Nagy , Padmakar Kulkarni

    Integrating ESG criteria into equity portfolios raises important portfolio construction questions. For example, what is the impact of ESG on portfolio performance and characteristics? How does it alter the risk profile and the factor exposures of portfolios? How does it affect institutional investors’ ability to pursue their investment strategy?  Our results show that integrating ESG criteria into passive strategies generally improved risk-adjusted performance over the period 2007 to...

    Which Factors Are More Time-Sensitive?

    Blog | Sep 28, 2016 | Dimitris Melas

    Hedge funds and other investors who manage portfolios that rebalance frequently face a challenge when it comes to the use of factors for trading, hedging and risk monitoring: Which factors tend to break down over time?

    Why Economic Exposure Matters

    Blog | Jul 21, 2016 | Dimitris Melas

    Investors with global portfolios need to know where the companies they invest in are domiciled. It is equally important, however, for them to know where those companies earn their revenue. Data from MSCI shows that the geographic distribution of companies’ revenues can have a significant impact on their stock prices.

    How the Brexit Vote may Impact your Portfolio

    Blog | Jun 24, 2016 | Dimitris Melas

    While the long-term consequences for investors of the decision by U.K. voters to leave the European Union may take time to unfold, our analysis of the months that preceded the referendum shows that tremors from Brexit already have stirred up markets and upped systemic risk for Britain compared with developed markets generally. The question now is whether the waves will continue and how they may (or may not) intensify.

    Using Systematic Equity Strategies: Managing Active Portfolios in the Global Equity Universe

    Research Report | Apr 18, 2016 | Dimitris Melas , Imre Balint

    Both quantitative managers and fundamental stockpickers need to understand their risk exposures, build efficient portfolios and differentiate themselves from their competitors. Factor models identify country, industry and style factors, which help forecast and explain portfolio risk. A subset of style factors, Systematic Equity Strategy (SES) factors — such as value, momentum and quality — has also earned positive long-term returns historically. In this paper, we review the role of SES...

    Using Systematic Equity Strategies

    Blog | Apr 18, 2016 | Dimitris Melas

    Top-down managers assess the economic outlook and translate macro views into country and industry portfolio positions. In contrast, bottom-up managers select securities based on a set of common criteria, for example valuations, profitability, growth, quality, yield, as well as company-specific attributes.

    Is Momentum Crashing?

    Blog | Apr 8, 2016 | Dimitris Melas

    Momentum, the tendency of past winners to continue to do well in the near future, is a pervasive return regularity in equities and across asset classes. It is used both as a signal in alpha models and as a factor in risk models.

    Multi-Factor Strategies Highlight Benefits of Diversification

    Blog | Mar 14, 2016 | Dimitris Melas

    The cyclicality of factor strategies means that individual factors can deliver a premium against the market over time but that any one factor can experience periods of underperformance.

    Are Your Factors Aligned?

    Research Report | Mar 10, 2016 | Mehmet Bayraktar , Dimitris Melas , Leon Roisenberg

    Many institutional investors develop proprietary return forecasting models, but use third-party/alternative models such as the MSCI Global Equity Total Market Model to measure risk and transaction costs. While there may be a significant overlap between the factors used in alpha and risk models, at times they may be misaligned. For managers who optimize their portfolios, the optimizer will tend to amplify the component of alpha that is not aligned with the risk model; this may lead to...

    Unpacking the Volatility so Far

    Blog | Feb 18, 2016 | Dimitris Melas

    The year that began in January stands out for the uncertainty that has rocked the global economy. The search for growth, the prospect of deflation and a slowdown in China have combined to roil financial markets and challenge asset owners and managers worldwide

    Constructing Low Volatility Strategies

    Blog | Jan 25, 2016 | Dimitris Melas

    Low volatility is one of the few factors that have historically performed well in turbulent markets.

    Research Insight - Riding on Momentum

    Research Report | Dec 15, 2015 | Abhishek Gupta , Dimitris Melas , Imre Balint , Jain Vipul

    Momentum, the tendency of past winners to continue to do well in the near future, is used widely in risk models, quantitative strategies and, more recently, as the basis for factor indexes aiming to replicate the performance of this pervasive factor. But the academic definition of momentum is extremely difficult to implement because it tends to lead to high volatility exposure and excessive portfolio turnover. Our approach involves selecting securities based on risk-adjusted performance and...

    Riding on Momentum

    Blog | Dec 15, 2015 | Dimitris Melas

    Momentum, the tendency of past winners to continue to do well in the near future, is used widely in risk models and in quantitative strategies. Recently, momentum has also been the basis for factor indexes aiming to replicate the performance of this pervasive factor.

    The MSCI Diversified Multi-Factor Indexes

    Research Report | May 27, 2015 | Dimitris Melas , Chin Ping Chia , Stuart Doole , Padmakar Kulkarni

    Multi-factor indexes are important tools for institutional investors seeking diversified exposure to factors that have historically generated premia over long horizons. In this Research Spotlight, we examine the new MSCI Diversified Multi-Factor (DMF) Index family, which selects stocks with exposures to the value, momentum, quality and low size factors, while keeping risk at the level of the market.

    MSCI Diversified Multiple-factor Indexes

    Research Report | May 7, 2015 | Dimitris Melas , Chin Ping Chia , Stuart Doole , Padmakar Kulkarni

    Maximizing Factor Exposure While Controlling Volatility. May 2015 Multi-factor indexes are important tools for investors seeking diversified exposure to factors that have historically generated premia over long horizons.  In this Research Insight, we examine the new MSCI Diversified Multiple-Factor (DMF) Index family. These indexes combine four well-researched factors — value, momentum, size and quality — with a control mechanism designed to keep volatility close to the level of the...

    Selecting the Blend of Factor Indexes

    Blog | Dec 9, 2014 | Dimitris Melas

    Many institutional investors have struggled to determine the appropriateness of factors for their own plan, what role these allocations might play, which factors should be adopted and how factor indexes can be used.

    The Different Ways Macro Risk Impacts Factors Index

    Blog | Apr 11, 2014 | Dimitris Melas

    As we recently said in our post, systematic factors have historically been sensitive to macroeconomic and market forces but not in the same way. For example, some, such as Value, Momentum and Size have been pro-cyclical, meaning they outperformed when economic growth and volatility were rising.

    40 Years of History - With Deeper History Comes New Insights

    Blog | Apr 11, 2014 | Dimitris Melas

    We recently extended our simulated index factor history to 40 years, providing a unique set of data compared to others available in the marketplace. This extended history, combined with IndexMetrics, MSCI’s analytical framework, offers investors sharper tools for creating and analyzing portfolios.

    Factor Index Performance in Changing Economic Environments

    Blog | Apr 11, 2014 | Dimitris Melas

    Institutional investors have historically been concerned over the changing state of the economy and its impact on their investments whether it was about "Abenomics" or "taper tantrums." As a result, we are noting that they are increasingly taking changing macroeconomic conditions into consideration for their asset allocations.

    Research Insight - Capturing Factor Premia - April 2014

    Research Report | Apr 10, 2014 | Dimitris Melas , Oleg Ruban , Jyh-huei Lee

    Using the lens of the Barra US Equity Model (USE4S), this Research Insight provides a practical guide to constructing investable factor portfolios. This paper begins by discussing the general concept of a factor portfolio. We then explore the role of optimization in making a 'pure factor portfolio' investable. We assess how investability constraints impact the performance of factor-replicating portfolios. Finally, we discuss how MSCI Market Neutral Barra Factor Indexes can be used in an...

    Deploying Multi-Factor Index Allocations

    Research Report | Dec 3, 2013 | Dimitris Melas , Subramanian Aylur , Jennifer Bender , Madhusudan Subramanian

    Factor investing has become a widely discussed part of today’s investment canon. This paper is the second in a three-paper series focusing on factor investing. In the first paper, "Foundations of Factor Investing," we discussed six factors - Value, Low Size, Momentum, Low Volatility, Yield, and Quality - that historically have earned a premium over long periods, represent exposure to systematic sources of risk, and have strong theoretical foundations. We also discussed how...

    IMPLEMENTING FACTORS THOUGH MULTI-FACTORS INDEX ALLOCATIONS-- A NEW APPROACH FOR INSTITUTIONAL MANDATES

    Blog | Dec 3, 2013 | Dimitris Melas

    Let’s look at how factor allocations fit in the traditional institutional portfolio setting. Factor investing utilizing indexes can be viewed as active decisions implemented through passive replication. As such, factor allocations should be tailored to each institution.

    Foundations of Factor Investing

    Research Report | Dec 3, 2013 | Dimitris Melas , Subramanian Aylur , Jennifer Bender

    Factor investing has become a widely discussed part of today’s investment canon. This paper is the first in a three-paper series focusing on factor investing. In this paper we lay out the rationale for factor investing and how indexation can capture factors in cost-effective and transparent ways.[1] [1] The next papers series cover various aspects of implementation including use cases we have seen.

    Foundations of Factor Investing

    Research Report | Jan 31, 2013 | Dimitris Melas , Remy Briand , Subramanian Aylur

    This paper discusses the rationale for factor investing and how indexe can be constructed to reflect factor returns in cost-effective and transparent ways. We currently identify six equity risk factors that have historically earned a long-term risk premium and represent exposure to systematic sources of risk: Value, Low Size, Low Volatility, High Yield, Quality and Momentum.

    Economic Exposure to Emerging Markets

    Research Report | May 30, 2012 | Dimitris Melas , Sivananth Ramachandran , Madhusudan Subramanian

    As companies increasingly operate across multiple countries and regions, we consider the concept of "economic exposure" which may be derived from the geographic distribution of a company's revenues. This concept offers a new dimension to the construction and evaluation of global equity portfolios and may serve multiple purposes in the investment process - including macro view implementation, security selection, portfolio analysis, risk management and client reporting. Furthermore, a...

    Harvesting Risk Premia with Strategy Indices

    Research Report | Sep 5, 2011 | Dimitris Melas , Roger Urwin

    Systematic risk premia such as value, size or momentum can account for a substantial part of long-term institutional portfolio performance. Over the last few years, we have seen the development of many new indices that reflect systematic risk premia, opening up the possibility to capture risk premia through indexation. Yet, the institutional asset allocation process continues to focus more heavily on the selection of active managers rather than the selection and combination of risk premia,...

    Harvesting Risk Premia with Strategy Indices

    Research Report | Sep 5, 2011 | Dimitris Melas , Roger Urwin

    Systematic risk premia such as value, size or momentum can account for a substantial part of long-term institutional portfolio performance. Over the last few years, we have seen the development of many new indices that reflect systematic risk premia, opening up the possibility to capture risk premia through indexation. Yet, the institutional asset allocation process continues to focus more heavily on the selection of active managers rather than the selection and combination of risk premia,...

    Harvesting Risk Premia with Strategy Indices

    Research Report | Sep 5, 2011 | Dimitris Melas , Roger Urwin

    Systematic risk premia such as value, size or momentum can account for a substantial part of long-term institutional portfolio performance. Over the last few years, we have seen the development of many new indices that reflect systematic risk premia, opening up the possibility to capture risk premia through indexation. Yet, the institutional asset allocation process continues to focus more heavily on the selection of active managers rather than the selection and combination of risk premia,...

    Capturing the Value Premium

    Research Report | Apr 20, 2011 | Dimitris Melas , Roman Kouzmenko , Padmakar Kulkarni , MSCI Index Research , Madhusudan Subramanian

    MSCI Value Weighted Indices are systematic indices that aim to reflect the value premium by employing an alternative weighting scheme that tilts the index towards stocks with lower valuation ratios. In this paper, we review the theoretical aspects of value weighted indices and through empirical studies we discuss the important facets of index construction that underpin the design of MSCI Value Weighted Indices. They are based on an objective and transparent methodology by which all the...

    Applications of Systematic Indices in the Investment Process

    Research Report | Sep 7, 2010 | Dimitris Melas , Xiaowei Kang

    Systematic factors account for a substantial part of long-term portfolio performance. While market-cap indices represent effective instruments to capture the market beta, systematic indices are important tools to capture additional style and strategy betas. A factor based approach to asset allocation is increasingly gaining recognition among institutional investors. Systematic indexes could facilitate the implementation of such factor based asset allocation, by enabling investors to capture...

    Stress Testing in the Investment Process

    Research Report | Aug 4, 2010 | Dimitris Melas , Oleg Ruban

    This paper presents a framework for conducting effective stress tests and incorporating insights from stress tests in portfolio construction. We examine how to determine the scope of the test, how to construct severe, but plausible scenarios, how to transmit the shock to the portfolio and how to incorporate the results of stress tests in portfolio construction. Stress testing can be a useful complement to risk model outputs, such as volatility, VaR, and expected shortfall. The key advantage...

    The BP Oil Crisis Spills Over to UK Domestic Portfolios

    Research Report | Jun 16, 2010 | Dimitris Melas , Xiaowei Kang , MSCI Applied Research

    The oil spill in the Gulf of Mexico has turned into a catastrophic event with major environmental and financial implications. Has this stock specific event had an impact on the wider market? What are the implications for institutional portfolios? What are the long-term investment repercussions from this crisis? This research bulletin discusses these important questions facing institutional investors in the aftermath of the BP oil spill crisis.

    The Perils of Parity

    Research Report | May 18, 2010 | Dimitris Melas , Oleg Ruban

    This paper examines the recent trend of adding leverage to fixed income allocations of multi-asset class portfolios of large asset owners. We show that the optimality of adding leverage from a volatility-reduction perspective depends on the correlations between bonds and equities, the relative volatility of bonds versus equities, and the weights of the two asset classes in the portfolio. If correlations between bonds and equities are negative, adding leverage could reduce the volatility of a...

    A Fresh Look at the Strategic Equity Allocation of European Institutional Investors

    Research Report | Jan 8, 2010 | Dimitris Melas , Xiaowei Kang

    MSCI Barra has recently published three research papers that examine the current equity asset allocation practices in the US, UK, and Japan and identify an increasing adoption of a global approach to equity allocation. This paper reviews the current strategic equity allocation policies of European institutional investors. It discusses the evidence that challenges the separation of equity policy portfolio into domestic/international allocations or regional allocations at the strategic level,...

    International Diversification from a UK Perspective

    Research Report | Apr 1, 2009 | Dimitris Melas , Oleg Ruban

    The market turmoil of 2008 highlighted the importance of risk management to investors in the UK and worldwide. Realized risk levels and risk forecasts from the Barra Europe Equity Model (EUE2L) are both currently at the highest level for the last two decades. We explore the historical diversification effects of an international allocation for UK investors. We illustrate that investing only in the UK market can be considered an active deviation from a global benchmark. A UK domestic strategy...

    Macroeconomic Factors in a Fundamental World

    Research Report | Mar 1, 2007 | Yang Liu , Dimitris Melas

    In this article, we examine the relationship between macroeconomic and fundamental factors and demonstrate how fundamental factor models can be used to extract the macroeconomic perspective and enhance our understanding of the common sources of portfolio risk and return. We start by assessing the importance of macroeconomic factors, both from a theoretical as well as a practical perspective, and we discuss the reasons why we have seen renewed interest in these factors in recent years....