We develop a methodology to model factor returns in scenarios which are yet to occur or do not correspond to past market conditions. We infer factor performance conditional on hypothetical market-driven scenarios, which are determined by a parsimonious number of underlying policy shocks. We...

We define defensive factor timing as pro-actively using market signals—measures of aggregate risk tolerance, the effectiveness of diversification, and valuation measures—to reduce exposures to individual factors or a portfolio of factors when outlooks are unattractive. Unlike other market...