Value Investing: Smart Beta vs. Style Indices

Journal of Indexes, Forthcoming

7 Pages Posted: 7 Aug 2014

See all articles by Jason C. Hsu

Jason C. Hsu

Rayliant Global Advisors; Research Affiliates, LLC; University of California, Los Angeles - Anderson School of Business

Date Written: August 7, 2014

Abstract

The active shares of traditional value style indices are dominated by industry bets. They also capture less than the entire value premium because, weighting constituents on the basis of capitalization, they tend to hold large positions in overpriced stocks and small positions in underpriced (i.e., value) stocks. Smart beta strategies, in comparison, are better diversified, and they systematically buy low and sell high by periodically rebalancing to non-price related target weights. In addition to exploiting mean reversion in prices, smart beta strategies profit from mean reversion in the value premium by effectively implementing a dollar cost averaging program.

Keywords: Value Index, Smart Beta, Value Strategies

JEL Classification: G10

Suggested Citation

Hsu, Jason C., Value Investing: Smart Beta vs. Style Indices (August 7, 2014). Journal of Indexes, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2477293

Jason C. Hsu (Contact Author)

Rayliant Global Advisors ( email )

Hong Kong

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

HOME PAGE: http://www.jasonhsu.org

University of California, Los Angeles - Anderson School of Business

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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