The Lost Decade: Have Macro Factor Risk Premia Become Irrelevant?

Abstract

The role of factors in macro investing has come into question after mediocre performance during the past decade. In this article, the authors confirm this decline in profitability and examine the importance and relevance of macro factors via three different approaches, analyzing their explaining power for asset risks and cross-sectional return variations. They find no evidence of declining importance over time. They discuss a few possible explanations for the apparently unreliable risk premia associated with these factors in the recent decade.