Smart-Beta Herding and Its Economic Risks: Riding the Dragon?
FinTech working paper no. 3, 2018
54 Pages Posted: 9 Oct 2018
Date Written: September 27, 2018
Smart-beta (or factor) investing industry’s assets under management have grown to over $1 trillion. We attempt to survey the merits and risks of this investment style from both professional investors’ and academics’ points of view. After reviewing academic papers, reports of practitioners in the field and relevant news articles around the topic as well as the literature on herding in financial markets, we conclude that herding in smart-beta is likely taking place, with a distinct and growing possibility of a market correction that would catch many factor investors wrong-footed.
Keywords: Smart beta, factor investing, herding
JEL Classification: G11, G01, G02
Suggested Citation: Suggested Citation