Passive Implementation of Factor Diversification Strategies

Ghayur, Khalid; Heaney, Ronan G.; Platt, Stephen

doi:10.3905/jii.2013.4.1.052

Cited by 2 publications

(2 citation statements)

References 21 publications

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“…This divergence aligns with the findings of Barroso and Santa-Clara (2015) and Ghayur et al (2019), who demonstrate that momentum strategies tend to crumble during market downturns.…”

Section: Discussion Of Resultssupporting

confidence: 88%

“…The underperformance of past winners indicates a momentum crash that typically occurs during market crises. Consistent with the research conducted by Barroso and Santa-Clara (2015), Ghayur et al (2019) demonstrate that momentum strategies tend to deliver strong performance in bullish market conditions but perform poorly in bearish market conditions. Subsequent to the global financial crisis of 2007-2008, portfolios relying on momentum performed poorly in both the US and emerging markets.…”

Section: Factor Performance In Crisis Periodssupporting

confidence: 80%

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Application of Explainable Artificial Intelligence to model the influence of firm-specific factors on stock performance in sub-Saharan Africa during COVID-19.

Ncube,

Sibanda,

Matenda

2024

Preprint

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The COVID-19 pandemic has brought forth a novel and challenging investment environment for stock markets in both developed and emerging economies. This study delves into the under-researched field of factor investing, analysing the influence of firm-specific factors on stock performance in sub-Saharan Africa during the pandemic in four selected stock exchanges. Using explainable artificial intelligence (XAI), we analysed the cross-sectional data of firms listed on these exchanges in both the pre-pandemic and pandemic periods to identify the key factors driving stock returns. Our findings reveal that quality factors such as high profitability and low leverage emerged as the dominant drivers of resilience during the pandemic. This contrasts with the pre-pandemic scenario, where traditional factors, such as size, momentum, and value, were the primary determinants. We also find that during the pandemic, small-cap stocks generally outperformed large-cap stocks on larger stock exchanges, whereas large-cap stocks outperformed on smaller stock exchanges. The pandemic also ushered in a shift in the norm, as we found that highly volatile stocks outperformed low-volatility stocks and stocks classified as winners in the pre-pandemic period experienced a momentum crash. Further analysis explores the potential of factor-based portfolios. We demonstrate that portfolios constructed based on the identified key factors consistently outperform their market-cap weighted counterparts across all exchanges, both pre- and post-pandemic. This research highlights the importance of focusing on firm-specific factors to construct more resilient investment portfolios and potentially attain superior returns, even during times of economic turbulence.

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“…This divergence aligns with the findings of Barroso and Santa-Clara (2015) and Ghayur et al (2019), who demonstrate that momentum strategies tend to crumble during market downturns.…”

Section: Discussion Of Resultssupporting

confidence: 88%

Section: Factor Performance In Crisis Periodssupporting

confidence: 80%