Multifactor Strategy Implementation in the Norwegian Equity Market

Abstract

We study the performance of implementation methods for multifactor strategies in the Norwegian equity market. We compare the risk-adjusted performance of three different strategies implemented with equal weights, mean-variance optimized weights and factor-timed weights. During the financial crisis, the mean-variance optimization strategy performed exceptionally well with a Sharpe ratio if 0.402. The factor timing strategy underperformed during the financial crisis, but outperforms in normal times, generating a Sharpe ratio of 0.705 between March 2009 and December 2019. Moreover, the factor timing strategy is superior in the long run, although differences in risk-adjusted returns are minor. Our findings indicate that implementing factor-timed weights estimated on macroeconomic variables and moving to mean-variance optimized weights during crises may enhance the risk-adjusted returns of a multifactor strategy.