Nº 22-04: Strategic Complementarity and Substitutability of Investment Strategies

Institutional investors in equities tend to follow well-de ned investment strategies, often based on factors such as size, value, momentum, quality, dividend yield and other stock characteristics. This paper explores the impact of capital flows between investment strategies on the cross-section of their performance. We nd that the correlation between factor performance and the cyclical nature of risk premia can be explained by capital flows. The CAPM with a non-mean-variance investor supports these results.