Smart Equity Investing: Implementing Risk Optimization Techniques on Strategic Beta Portfolios

84 Pages Posted: 25 May 2018

See all articles by Boris Fays

Boris Fays

University of Liege, HEC Management School

Marie Lambert

University of Liege - HEC Management School

Nicolas A. Papageorgiou

HEC Montreal - Department of Finance

Date Written: January 1, 2018

Abstract

We examine the performance of risk-optimization techniques on equity style portfolios. To form these portfolios, also called Strategic Beta factors by practitioners and data providers, we group stocks based on size, value and momentum characteristics through either independent or dependent sorting. Overall, performing risk-oriented strategies on style portfolios constructed with a dependent sort deliver greater abnormal returns. On average, we observe these strategies to significantly outperform 42% of the risk-oriented ETFs listed on US exchanges, compared to 31% when the risk-oriented strategies are performed on portfolios formed with an independent sort. We attribute the outperformance yielded by dependent sorting to the fact that it provides a better stratification of the set of stocks’ opportunity and diversification properties.

Keywords: Portfolio Management, Depend Sort, Risk Premia, Smart Beta

JEL Classification: G10, G11

Suggested Citation

Fays, Boris and Lambert, Marie and Papageorgiou, Nicolas A., Smart Equity Investing: Implementing Risk Optimization Techniques on Strategic Beta Portfolios (January 1, 2018). Available at SSRN: https://ssrn.com/abstract=3179548 or http://dx.doi.org/10.2139/ssrn.3179548

Boris Fays (Contact Author)

University of Liege, HEC Management School ( email )

Liège
Belgium

Marie Lambert

University of Liege - HEC Management School ( email )

HEC-Liège
rue Louvrex 14
LIEGE, Liege 4000
Belgium

Nicolas A. Papageorgiou

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Register to save articles to
your library

Register

Paper statistics

Downloads
104
Abstract Views
417
rank
260,436
PlumX Metrics