Factor Allocation Model: Integrating Factor Models and Strategies into the Asset Allocation Process
Apr 14, 2021
The combination of integrated multi-asset-class factor models and factor-based investment strategies has the potential to redefine the asset allocation process.
Factors are the underlying forces that drive portfolio risk and performance over different investment horizons. In this article, the author reviews the theoretical foundations and practical applications of factor models and discusses the integration of factors into different types of investment strategies. Lastly, he describes how factor models and strategies may enable investors to manage total portfolio risk and capture risk premiums through the asset allocation process. ©2021 Pageant Media. Republished with permission of the Journal of Portfolio Management, from “Factor Allocation Model: Integrating Factor Models and Strategies into the Asset Allocation Process.” Dimitris Melas. Vol. 47, No. 5, 2021.
The Multi-Tier Structure of Modern Multi-Asset-Class Factor Models Enables Asset Allocation
Shepard, P., A. Demond, L. Xiao, C. Zhou, and J. Ahlport. "The MSCI Multi Asset Class Factor Model." MSCI Model Insight, 2020.
- Dimitris Melas, Managing Director, MSCI Research
Our latest insights.Read More
A smoother ride? Looking at factor-based asset allocation
Our analysis shows that the holdings-based approach resulted in greater-than-expected fluctuations in risk contributions.Read the Blog
MSCI has developed factor indexes, FaCS and factor models backed by four decades of factor research and innovation.Explore More