Accounting for Cross-Factor Interactions in Multifactor Portfolios without Sacrificing Diversification and Risk Control
比较了自下而上和自上而下的多因子投资组合构建方法，发现只追求高因子强度会导致效率低下，并引入了一种在股票选择层面调整跨因子相互作用的新方法，在降低极端损失和换手率的同时提高了相对表现。
In this article, the authors compare different approaches for constructing multifactor equity portfolios: bottom-up score-weighting approaches that target high-factor intensity and top-down approaches that also consider diversification objectives. They find that focusing solely on increasing factor intensity leads to inefficiency in capturing factor premia, because exposure to unrewarded risks more than offsets the benefits of increased factor scores. High factor scores in bottom-up approaches also come with high instability and turnover. The authors introduce an approach that considers cross-factor interactions in top-down portfolios through an adjustment at the stock-selection level. While producing lower factor intensity than bottom-up methods, this approach leads to higher levels of diversification and produces higher returns per unit of factor intensity. The authors report that it dominates bottom-up approaches in terms of relative performance, while considerably reducing extreme relative losses and turnover. <b>TOPICS:</b>Portfolio construction, analysis of individual factors/risk premia, VAR and use of alternative risk measures of trading risk