Smart Beta Through the Lens of Risk Factors
16 Pages Posted: 7 Jan 2015 Last revised: 28 Jun 2016
Date Written: November 18, 2014
We analyze five popular smart beta indices with a simple two risk-factor framework. Our analysis shows that majority of the return variations of these five smart beta indices can be explained by S&P 500 and Barclays Treasury index. We also demonstrate that the diversification effect is limited by including the smart beta indices in an equity index portfolio with a metric called implied breath.
Keywords: smart beta, risk factors
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