Designing macro factors for portfolio choice

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The recent asset pricing literature seeks to explain the cross-section of many asset classes in termsof style factors such as value and momentum, leading to the new investment paradigm of factorbasedinvesting. From a top down perspective, investors should be most concerned about shocksin macro factors such as growth or inflation that ultimately govern the pricing of broad asset classes.Yet, there has been little research into modeling and managing such macro factors in a way thatinvestors' portfolio choice ultimately results in feasible portfolio allocations. This research projectaims to thoroughly address modeling macroeconomic factors against this objective and toultimately guide the design of portfolio allocations that can to serve various investors needs.As such we will further the academic profession's understanding of the underlying economicmechanism and provide the investment management industry with guideposts to efficientlynavigate and harvest macro factor premia.