Are Factors Fundamentally Technical or Are They Technically Fundamental?
Joe Staines & Arpit Gupta
What the paper says
The selection of factors for systematic investing or risk management has occupied the asset management industry for as long as they have been used to predict and explain returns. Traditionally, tools and methods for discretionary investing have been bifurcated between fundamental and technical approaches. Practitioners of either school of analysis have sometimes even cast aspersions on each other. However, for quants this line has often been more blurred. We take this idea further, arguing that factor-based investing represents styles that can be constructed using, or attributed to, the methods of either school. We find that the benefits of one school’s framing are not unique. We outline theoretical reasons why we would expect there to be technical analogues for fundamental factors (or vice versa) and show empirical evidence of the relationships between these pairs of factors. Finally, we show that there may be benefits to combining fundamental and technical definitions in factor strategies, taking long-only US large cap equity as an example.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.