Investing in Systematic Factor Premiums

42 Pages Posted: 2 Mar 2016

See all articles by Kees C. G. Koedijk

Kees C. G. Koedijk

Tilburg University - Department of Finance

Alfred Slager

Tilburg University - TIAS School for Business and Society

Philip A. Stork

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Multiple version iconThere are 3 versions of this paper

Date Written: March 2016

Abstract

In this paper we investigate and evaluate factor investing in the US and Europe for equities and bonds. We show that factor‐based portfolios generally produce comparable or better portfolios than market indices. We expand the analysis to other asset classes and factors, work with other optimisation methods and add a basic liability structure. The results do not depend on adding other asset classes or on the removal of a specific factor. Finally, we study the results for a worldwide investor who invests beyond the US and Europe. Over the longer term and with consistently applied factor diversification, factor investing appears to be advantageous.

Keywords: portfolio management, factor investing, diversification, optimisation

Suggested Citation

Koedijk, Kees G. and Slager, Alfred and Stork, Philip A., Investing in Systematic Factor Premiums (March 2016). European Financial Management, Vol. 22, Issue 2, pp. 193-234, 2016. Available at SSRN: https://ssrn.com/abstract=2740783 or http://dx.doi.org/10.1111/eufm.12081

Kees G. Koedijk (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4663048 (Phone)
+31 13 4662052 (Fax)

Alfred Slager

Tilburg University - TIAS School for Business and Society ( email )

Warandelaan 2
TIAS Building
Tilburg, Noord Brabant 5037 AB
Netherlands

Philip A. Stork

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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