The Intersection of Asset Allocation and Factor Investing

This thesis contains three empirical studies in the intersection of asset pricing and investment practice. All three studies aim to combine asset pricing theories and academic rigor with practical investment applications.

In chapter 1, I briefly review the sub-fields of the broad asset pricing literature that are relevant to the three empirical studies, and discuss their impact on the practice of factor investing and asset allocation. In the second chapter, we investigate the presence of cross-sectional asset pricing effects of intangible assets, and the potential economic explanations. Our study in chapter 3 is related to the time-series return predictability literature, but focuses on the time-varying relation between volatility and return. In particular, we evaluate the performance and practical application of volatility targeting strategies in global equities markets and long-short equity factors. Last but not least, my study in chapter 4 builds on the stock return decomposition literature, but focuses on risk-based asset allocation rather than return prediction. In particular, I propose a macro factor-based framework to diversify equity market risk, as an alternative to asset class-based diversification.

Overall, this thesis highlights the relevance of the asset pricing literature to the practice of factor investing and asset allocation. Our three empirical studies also showcase the interconnection between asset allocation, factor investing, and risk management.