AQR wins "Best Factor Investing Paper 2018"
The concept of factor investing dates back to the 1970s, but in the last five years there has been a surge in interest from institutional investors. Factor-based allocations have their roots in academic research, documenting the existence of factor premiums, which can be systematically harvested to improve risk-adjusted returns. The papers below continue the quest to understand and explain the concept further.
WINNER: AQR CAPITAL MANAGEMENT
The "size effect" is based on the discovery that small cap equities have better long-run, risk-adjusted returns than larger stocks. This was the first generally accepted return anomaly to challenge the conventional wisdom of the standard asset pricing model. In this paper, Ron Alquist, Ronen Israel, and Tobias J. Moskowitz use publicly available data to examine the facts about the size effect, aiming to clarify and correct misunderstandings.
Factor investing strategies have at their foundation a huge amount of empirical and academic justification built over many decades. Robeco are one of the leaders in factor investing research, with a large number of high quality reports published on the Savvy Investor platform. In this paper, they bring together nine academics to discuss a variety of pertinent issues.
Factor investing has gained widespread acceptance over the last decade, and in recent years an increasing number of equity multifactor funds have become available. In this report, Morningstar outlines a framework to help investors get under the hood of each fund and understand the implications better.
This 18-page paper from FTSE Russell aims to answer some of the practical questions asked by instituional investors when considering allocating to factor strategies.
This "practitioner’s guide" is part of a series from S&P Dow Jones Indices, aimed as helping investors better understand each of the key equity risk factors. In particular, the report does three things: it examines the evidence for the low-volatility "anomaly", it describes how low-volatility indices are constructed, and it discusses how low vol strategies can be best applied.
In this 17-page quant paper, authors from Intech and the London School of Economics examine the observation that cap-weighted indices can be outperformed by equal-weighted, random-weighted, or other, simply constructed, systematic portfolios. The authors seek to provide a better explanation of this than the current prevailing view.
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