PT - JOURNAL ARTICLE
AU - De Franco, Carmine
AU - Guidolin, Massimo
AU - Monnier, Bruno
TI - The Robustness of the Volatility Factor: <em>Linear versus Nonlinear Factor Model</em>
DP - 2017 Nov 30
TA - The Journal of Index Investing
PG - 75--88
VI - 8
IP - 3
4099 - http://jii.iijournals.com/content/8/3/75.short
4100 - http://jii.iijournals.com/content/8/3/75.full
AB - This article investigates the trade-off between an extension of the standard three-factor model including a new volatility factor compared to a parsimonious Markov switching model in the context of performance and risk analysis for a set of popular alternative beta strategies. The authors use Bayesian techniques to estimate a two-state (bull and bear) regime-switching model. Over the period of 1969–2014, they show that the inclusion of a time-varying feature in the standard model is as good as the extension of the volatility factor, at least in explaining the alphas for some alternative beta strategies.