Smart Beta Made Smart: Synthetic Risk Factors for Institutional and Retail Investors

72 Pages Posted: 24 Sep 2020 Last revised: 12 Aug 2021

See all articles by Andreas Johansson

Andreas Johansson

Stockholm School of Economics

Riccardo Sabbatucci

Stockholm School of Economics; Swedish House of Finance

Andrea Tamoni

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: May 5, 2020

Abstract

We construct tradable proxies of "on-paper" long-short risk factors using combinations of large
and liquid mutual funds and ETFs, based on their holdings, for both retail and institutional
investors. Using a novel proprietary dataset, we are able to account for the ETF shorting fees
in constructing the short leg of the factors. In contrast with the recent literature, we find that
investors are able to harvest the SMB and part of the HML risk premia, although MOM and
RMW remain hard to replicate, with institutional investors outperforming retails. Our results
have implications for the benchmarks that should be used to evaluate portfolio managers.

Keywords: Smart beta, factor investing, tradable risk premia, shorting costs, borrowing fees

JEL Classification: G11, G12

Suggested Citation

Johansson, Andreas and Sabbatucci, Riccardo and Tamoni, Andrea, Smart Beta Made Smart: Synthetic Risk Factors for Institutional and Retail Investors (May 5, 2020). Swedish House of Finance Research Paper No. 20-21, Available at SSRN: https://ssrn.com/abstract=3594064 or http://dx.doi.org/10.2139/ssrn.3594064

Andreas Johansson

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Riccardo Sabbatucci (Contact Author)

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Swedish House of Finance

Drottninggatan 98
111 60 Stockholm
Sweden

Andrea Tamoni

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

1 Washington Park
Newark, NJ 07102
United States

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