RT Journal Article
SR Electronic
T1 Facts about Factors
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 55
OP 65
DO 10.3905/jpm.2017.43.5.055
VO 43
IS 5
A1 Paula Cocoma
A1 Megan Czasonis
A1 Mark Kritzman
A1 David Turkington
YR 2017
UL https://pm-research.com/content/43/5/55.abstract
AB The authors evaluate the merits of factor stratification as an alternative to asset stratification. Their analysis reveals that it is more challenging to use factors than assets as the building blocks for forming portfolios because factor covariances are less stable than asset covariances. Nonetheless, factor stratification may be advantageous for a variety of other reasons. It may be that certain factors offer risk premiums; or it could be that by decomposing a portfolio into a set of factor exposures, investors will discover unintended risks. And awareness of a portfolio’s factor exposures may help to explain its performance.TOPICS: Analysis of individual factors/risk premia, factor-based models, portfolio construction