Pursuing Multiple Premiums: Combination vs. Integration

14 Pages Posted: 26 Feb 2021 Last revised: 4 Feb 2022

See all articles by Wei Dai

Wei Dai

Dimensional Fund Advisors

Namiko Saito

Dimensional Fund Advisors

Stephen Watson

Dimensional Fund Advisors

Date Written: February 26, 2021

Abstract

This paper compares two different approaches to pursue multiple premiums: a combination approach (market portfolio plus factor portfolios) and a fully integrated approach. We evaluate the two approaches via multiple lenses: pursuit of higher expected returns, distribution of over- and underweights, turnover, and costs. Our analysis shows the integrated approach can lead to greater reliability of outperformance, better risk control, and lower costs. These benefits are critical to an efficient pursuit of multiple premiums and cannot be replicated through combination approaches.

Keywords: factor investing, premium integration, multi-factor portfolios, portfolio design, asset allocation

JEL Classification: G11

Suggested Citation

Dai, Wei and Saito, Namiko and Watson, Stephen, Pursuing Multiple Premiums: Combination vs. Integration (February 26, 2021). Available at SSRN: https://ssrn.com/abstract=3793594 or http://dx.doi.org/10.2139/ssrn.3793594

Wei Dai

Dimensional Fund Advisors ( email )

6300 Bee Cave Road, Building One
Austin, TX 78746
United States

Namiko Saito (Contact Author)

Dimensional Fund Advisors ( email )

6300 Bee Cave Road, Building One
Austin, TX 78746
United States

Stephen Watson

Dimensional Fund Advisors ( email )

6300 Bee Cave Road, Building One
Austin, TX 78746
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,204
Abstract Views
4,276
Rank
34,817
PlumX Metrics