{"id":2105193,"date":"2019-05-08T17:57:42","date_gmt":"2019-05-08T12:27:42","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2105193"},"modified":"2019-05-08T18:11:28","modified_gmt":"2019-05-08T12:41:28","slug":"factor-holding-periods-for-excess-returns","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2019\/05\/08\/factor-holding-periods-for-excess-returns\/","title":{"rendered":"Factor Holding Periods for Excess Returns"},"content":{"rendered":"<p>The NSE has different &#8220;<a href=\"http:\/\/www.niftyindices.com\/indices\/equity\/strategy-indices\" rel=\"noopener\" target=\"_blank\">strategy<\/a>&#8221; indices that reflect some well known equity factors like low-volatility, quality, momentum and value. They are all shown to out-perform the NIFTY 50 TR index since inception:<br \/>\n<img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/raw\/master\/factor%20holding%20periods\/factor-index.cumulative.png\" width=\"1400\" height=\"800\" alt=\"cumulative returns of NSE factor 'strategy' indices\" class=\"alignnone size-full\" \/><\/p>\n<p>However, the excess returns of these indices, like everything else in equities, is unevenly distributed. As an investor, it could get frustrating to watch their &#8220;quality&#8221; factor investment under-perform the plain-old NIFTY 50 over many months. So broadly, for a given factor\/strategy, what should the minimum holding period be for an investor to see only a positive excess return?<\/p>\n<p><a href=\"https:\/\/github.com\/stockviz\/blog\/raw\/master\/factor%20holding%20periods\/negative.holding-period.vs.NIFTY%2050%20TR.png\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/raw\/master\/factor%20holding%20periods\/negative.holding-period.vs.NIFTY%2050%20TR.png\" width=\"4800\" height=\"2400\" alt=\"holding periods and excess returns for different factor\/strategy indices\" class=\"alignnone size-full\" \/><\/a><\/p>\n<p>Factors take time to work. The longer the holding period, the less frustrating the experience. Low-volatility and Quality have the shortest holding periods of 5 years. The Alpha and Value indices require about 10 years for investors to see only positive excess returns. Also, given the lack of liquid, low-cost ETFs and index funds that track these factor indices, investors have to also contend with STT and capital-gains tax if they go the DIY route.<\/p>\n<p>The edge that statistical factors have over market-cap based indices are measured over decades and require investors to be patient.<\/p>\n<p>Charts and code on <a href=\"https:\/\/github.com\/stockviz\/blog\/tree\/master\/factor%20holding%20periods\" rel=\"noopener\" target=\"_blank\">github<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The NSE has different &#8220;strategy&#8221; indices that reflect some well known equity factors like low-volatility, quality, momentum and value. They are all shown to out-perform the NIFTY 50 TR index since inception: However, the excess returns of these indices, like everything else in equities, is unevenly distributed. As an investor, it could get frustrating to &hellip; <\/p>\n","protected":false},"author":2,"featured_media":2089693,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[3391,960],"class_list":["post-2105193","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-nifty","tag-returns","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2105193","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2105193"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2105193\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2089693"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2105193"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2105193"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2105193"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}