Replacing linear factors with a non-linear, characteristic approach in quant equity
from Flirting with Models
We’re back with another clip from the archives. This time it’s Season 4 Episode 9 with Vivek Viswanathan. For three decades, equity quants have largely lived under the authoritative rule of the Fama-French 3 Factor Model and linear sorts. In this episode, Vivek provides an cogent alternative to the orthodoxy. Specifically, he explains why an unconstrained, characteristic-driven portfolio can more efficiently capture behavioral-based market anomalies. I think this is a master class for alternative thinking in quant equity. It was really tough to clip this episode. Vivek’s comments about Chinese markets provide a tremendous example about finding alpha in alternative markets. But I’ll leave that for you to go back and dig out! Okay, let’s dive in.
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