Riding the 1/N Premium

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Referenz

Kaiser, L., & Peter, G. (2019). Riding the 1/N Premium.

Publikationsart

Arbeitspapier

Abstract

It is well understood that factor premiums, identified as contributing to portfolios risk and return, are time-varying and conditional on market phases. Besides, Amenc et al. [2016] report alternative weighting schemes not to yield similar performances, based on a common value and small-cap exposure, but identify alternative performance drivers. Thereon, we build on the existing literature regarding the factor exposure of value-weighted and equal-weighted portfolios and make us of the diversity-weighted indexing approach, in order to dynamically derive the degree of tilt towards an equal-weighting. We show that such strategies correspond to a factor rotation, whilst demonstrating favorable after-cost properties regarding risk-adjusted returns, downside deviation, portfolio concentration and tracking error. As such, it fulfills the characteristics of what Lo [2016] refers to as 'dynamic indexes.'

Mitarbeiter

Einrichtungen

  • Lehrstuhl für Betriebswirtschaftslehre, Bank- und Finanzmanagement
  • Institut für Finance