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On the Performance of Factor Investing: An Analysis Based on Constant Mix and Buy-and-Hold Strategies

Author

Listed:
  • Philippe Bertrand

    (AMU - Aix Marseille Université)

  • Jean-Luc Prigent

    (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)

Abstract

This paper analyzes the attractiveness of factor investing by comparing it directly to standard investing on a market index. In operational terms, we consider two types of factor investing portfolios based on long and short legs in the five Fama-French factors: the first one, called 130/30, is based on limits of $$130\%$$ 130 % on long positions and $$-30\%$$ - 30 % on short positions; the second one, called LSMLOF, consists of having a long-short position on the market index and only long positions on the factors. Assuming the existence of a risk-free asset (i.e. the Treasury Bill), we examine two main portfolio allocation strategies, namely the buy-and-hold strategy and the constant mix one. To carry out the comparison of the performances of the different portfolios, we consider various criteria such as their first four moments and their Sharpe ratios. We also introduce the notion of compensating variation to better account for the entire distribution of returns and investors’ risk aversion. Our study confirms the benefits of factor investing.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Philippe Bertrand & Jean-Luc Prigent, 2025. "On the Performance of Factor Investing: An Analysis Based on Constant Mix and Buy-and-Hold Strategies," Post-Print hal-05635053, HAL.
    • Handle: RePEc:hal:journl:hal-05635053
    DOI: 10.1007/s10479-025-06644-2
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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