My paper on using Fama-French factors for efficient asset allocation is up on SSRN:
Downloads, comments and questions gratefully received!
Using thirty years of Fama-French portfolio data, I show that autocorrelation of the value factor may be exploited to efficiently allocate capital into segments of the US stock market. The strategy outperforms the underlying portfolios on an absolute and risk adjusted basis. Annual returns are 5% greater than the components and Sharpe Ratio is increased by 86%.
The results are robust to different time periods and varying composition of underlying portfolios. Finally, I show that implementation costs are much smaller than the excess return and that the strategy is accessible to the individual investor.