Investing in a Multidimensional Market

13 Pages Posted: 20 Oct 2014

See all articles by Bruce I. Jacobs, Ph.D.

Bruce I. Jacobs, Ph.D.

Jacobs Levy Equity Management

Kenneth N. Levy

Jacobs Levy Equity Management

Date Written: September 23, 2014

Abstract

Many years ago, the authors demonstrated that there is much greater dimensionality to the stock market than is suggested by the one-factor capital asset pricing model. Investors today continue to underestimate the market’s dimensionality through their recent embrace of “smart beta” strategies. Such strategies assume a market in which a few chosen factors produce persistent returns. In reality, there are numerous factors that produce returns, which vary over time. Those returns can best be captured by a multidimensional approach that emphasizes diversification across many proprietary factors and continuous adjustment of exposures to those factors.

Keywords: Equity investing, portfolio management, factors, smart beta, smart alpha, disentangling, pure returns, anomalies, market complexity, multidimensional portfolios, rebalancing, small cap, value, low volatility, crowding, front running, management costs, turnover, generic factors, proprietary factors

JEL Classification: G11

Suggested Citation

Jacobs, Bruce I. and Levy, Kenneth N., Investing in a Multidimensional Market (September 23, 2014). Forthcoming, Financial Analysts Journal, Vol. 70, No. 6, November/December 2014. Available at SSRN: https://ssrn.com/abstract=2512373

Bruce I. Jacobs (Contact Author)

Jacobs Levy Equity Management ( email )

100 Campus Drive
P.O. Box 650
Florham Park, NJ 07932-0650
United States
973-410-9222 (Phone)
973-410-9333 (Fax)

HOME PAGE: https://jlem.com/who-we-are#/nav/founders

Kenneth N. Levy

Jacobs Levy Equity Management ( email )

100 Campus Drive
P.O. Box 650
Florham Park, NJ 07932-0650
United States
973-410-9222 (Phone)
973-410-9333 (Fax)

HOME PAGE: https://jlem.com/who-we-are#/nav/founders

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