Soon to be published in the Journal of Investing

Abstract

Changing macroeconomic conditions have the potential to strongly influence equity portfolio returns. This paper examines how key macroeconomic regimes affect the statistical characteristics of equity returns. We find that across a limited number of regimes, equities exhibit stable and well-defined properties, in- and out-of-sample. These findings are critical for investors wishing to incorporate their macroeconomic views in their investment decisions; they also facilitate reliable portfolio simulations and out-of-sample projections. Furthermore, we demonstrate that long-term factor models provide robust insights into portfolio behaviour within different macroeconomic contexts, even for portfolios with limited historical data.

Authors

Benoit Vaucher
Director of Research,
Scientific Climate Indices

Matteo Bagnara, PhD
Quant Researcher,
Scientific Climate Indices ……………………………………….
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