Comparative analysis of static and dynamic approaches to constructing factor investment strategies

The article compares static and dynamic approaches to constructing factor investment strategies, focusing on performance, risks, and practical implementation. The aim of the study is to formalize criteria for selecting a factor portfolio architecture that accounts for the cyclicality of premia, liquidity constraints, and transaction costs, and to clarify under which conditions a more complex dynamic specification is justified relative to fixed rules. The relevance of the work is driven by the widespread adoption of factor investing and, simultaneously, by mounting doubts regarding the persistence of premia and the out-of-sample transportability of factor-timing results. The scientific contribution lies in a comprehensive typology of static and dynamic schemes (exposure timing, volatility scaling, regime filters), an explicit treatment of premium degradation channels via costs, capacity, and model risk, and the rationale for a hybrid design with a robust static core and a minimally parametric dynamic risk-management layer. The main findings indicate that static strategies are superior in terms of interpretability and robustness to overfitting, whereas dynamic constructions can increase return density per unit of risk at the cost of greater sensitivity to estimation errors and to the structure of trading frictions. The article is intended for portfolio managers, risk managers, and researchers engaged in developing and testing factor strategies.