On the Specificity of Factor Signal Calculations

Abstract

This article examines the specificity of calculations for Bloomberg factor signals within five prominent factor categories, with a focus on practical analysis and application. We examine their performance from 2003 to 2021, from both a return and a stability standpoint of the factors, focusing on the importance of understanding the sensitivity of the reported signals to calculation definitions. We find that, in most cases, a better return and risk performance is found by combining non-extreme definitions in creating factor signals. Our findings suggest that an approximately 3% range of deviation around the baseline signal can be expected, dependent upon the specification of the signal calculation. Finally, we examine the potential impact of differing calculations on portfolio performance measurement. Ultimately, we conclude that investors should be careful in extrapolating presented factor values both in a macro sense of market impact and as it relates to portfolio exposures.