Shift in Factor Investing: An Empirical Study in India

Dr. Kumar Bijoy; Mr. Aman Kedia

doi:https://doi.org/10.17492/jpi.mudra.v10i2.1022305

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Shift in Factor Investing: An Empirical Study in India

Kumar Bijoy, Aman Kedia

Vol 10 , Issue 2 , July - December 2023 | Pages: 75-98 | Research Paper

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https://doi.org/10.17492/jpi.mudra.v10i2.1022305

Published Online: December 10, 2023

Author Details ( * ) denotes Corresponding author

1. * Kumar Bijoy, Associate Director, Department of Distance and Continuing Education, University of Delhi, NEW DELHI, Delhi, India (associatedirector@col.du.ac.in)

2. Aman Kedia, senior consultant, Quantitative Advisory Services, Ernst & Young , London, London, United Kingdom (aman.kedia1111@gmail.com)

The study during back-testing on individual factors and the alpha model finds the significant existence of abnormal return opportunities in the Indian market. For developing alpha models, Sharpe ratio, advanced optimization techniques such as multiple regression and support vector machine have been used with Macroeconomic variables as explanatory variables. Alpha models have provided better results than individual factors regarding performance statistics. This study also considers survivorship, forward-looking, and confirmation biases to make results more applicable for investment decisions and addresses different anomalies like low volatility, size, etc. Lastly, we have observed factors’ behavior and opportunities during the normal market regime and tilt in factor investing from the long-short to more implementable side of the long-only portfolio from the 2008 global crisis to post-demonetization to the (Covid-19) pandemic era. Finally, using the factor picking model, investment strategies have been suggested. Hence, market players may benefit from such opportunity gaps.

Keywords

Portfolio Management; Back-testing; Factor Investing; Multiple Regression; Support Vector Machine (SVM); Survivorship Bias

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