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Capturing Equity Risk Premia (August 2010)

29 Pages Posted: 14 Nov 2010  

Jose Menchero

MSCI Barra

Andrei Morozov


Date Written: August 3, 2010


In this paper we examine three approaches for capturing equity risk premia. In the "simple" approach, the manager goes long stocks with positive exposure and shorts stocks with negative exposure, but makes no effort to control for other exposures or to minimize risk. In the "pure" approach, the manager selectively retains only exposure to the desired factor, while hedging all other exposures. In the "optimized" approach, the manager constructs the minimum-risk portfolio with unit exposure to the desired factor. We document the performance of these three factor approaches for the World factor and the eight GEM2 style factors over the period January 1997 through December 2010.

Keywords: approaches capturing equity risk premia portfolio Worlf factor GEM2

Suggested Citation

Menchero, Jose and Morozov, Andrei, Capturing Equity Risk Premia (August 2010) (August 3, 2010). MSCI Barra Research Paper No. 2010-29. Available at SSRN: or

Jose Menchero (Contact Author)

MSCI Barra ( email )

555 California Street, Suite 1400
San Francisco, CA 94104
United States

Andrei Morozov

MSCI Inc. ( email )

88 Pine Street
2nd Floor
New York, NY 10005
United States

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