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Navigating the factor zoo around the world : an institutional investor perspective
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Bartram, Söhnke M., Lohre, H., Pope, P. and Ranganathan, A. (2021) Navigating the factor zoo around the world : an institutional investor perspective. Journal of Business Economics, 91 . pp. 655-703. doi:10.1007/s11573-021-01035-y ISSN 0044-2372.
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Official URL: https://doi.org/10.1007/s11573-021-01035-y
Abstract
The literature on cross-sectional stock return predictability has documented over 450 factors. We take the perspective of an institutional investor and navigate this zoo of factors by focusing on the evidence relevant to the practicalities of factor-based investment strategies. Establishing a sound theoretical rationale is key to identifying “true” factors, and we emphasize the need to recognize data-mining concerns that may cast doubt on the relevance of many factors. From a practical investment perspective, much of the factor evidence documented by academics may be more apparent than real. The performance of many factors is dependent on the inclusion of small- and micro-cap stocks in academic studies, although such stocks would likely be excluded from the real investment universe due to illiquidity and transaction costs. Nevertheless, a parsimonious set of factors emerges in equities and other asset classes, including currencies, fixed income, and commodities. These factors can serve as meaningful ingredients to factor-based portfolio construction.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce H Social Sciences > HG Finance |
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| Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||
| Library of Congress Subject Headings (LCSH): | Capital assets pricing model, Pricing, Stocks -- Prices, Investments, Asset allocation, Institutional investors, Transaction costs, Arbitrage | ||||||||
| Journal or Publication Title: | Journal of Business Economics | ||||||||
| Publisher: | Springer | ||||||||
| ISSN: | 0044-2372 | ||||||||
| Official Date: | July 2021 | ||||||||
| Dates: |
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| Volume: | 91 | ||||||||
| Page Range: | pp. 655-703 | ||||||||
| DOI: | 10.1007/s11573-021-01035-y | ||||||||
| Institution: | University of Warwick | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Reuse Statement (publisher, data, author rights): | This is a post-peer-review, pre-copyedit version of an article published in Journal of Business Economics. The final authenticated version is available online at: http://dx.doi.org/[insert DOI]”. | ||||||||
| Access rights to Published version: | Open Access (Creative Commons) | ||||||||
| Date of first compliant deposit: | 12 April 2021 | ||||||||
| Date of first compliant Open Access: | 24 May 2021 | ||||||||
| RIOXX Funder/Project Grant: |
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| Is Part Of: | 1 | ||||||||
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