We examine factor performance under alternating inflation regimes for different factor index series for the past twenty years (since January 2003).
Our analysis indicates Size and Value factors perform better when inflation expectations are rising. In contrast, Momentum, Quality and Low Volatility factors perform better in an environment of falling inflation expectations.
The patterns are generally similar for different geographies.
We aim to look at the potential link between inflation expectation changes and factor performance, and the medium of transmission, in a future paper.
Points of differentiation:
- Transparent analysis of the behaviour of different factor index series in different inflation regimes using multiple approaches
- Provisional suggestions for the relative performance of different factors
