Objective research to aid investing decisions

Value Investing Strategy (Strategy Overview)

Allocations for March 2024 (Final)
Cash TLT LQD SPY

Momentum Investing Strategy (Strategy Overview)

Allocations for March 2024 (Final)
1st ETF 2nd ETF 3rd ETF

Can Investors Capture Academic Equity Factor Premiums via Mutual Funds?

February 24, 2023 • Posted in Fundamental Valuation, Momentum Investing, Mutual/Hedge Funds, Value Premium, Volatility Effects

Do factor investing (smart beta) mutual funds capture for investors the premiums found in academic factor research? In their November 2022 paper entitled “Factor Investing Funds: Replicability of Academic Factors and After-Cost Performance”, Martijn Cremers, Yuekun Liu and Timothy Riley analyze the performance of funds seeking to capture of published (long-side) factor premiums. They group factor investing funds into four styles: dividend, volatility, momentum and q-factor (profitability and investment). They separately measure how closely fund holdings adhere to the long sides of academic factor specifications. They measure fund outperformance (alpha) relative to the market factor via the Capital Asset Pricing Model (CAPM) and via a multi-factor model (CPZ6) that accounts for the market factor and for granular size/value interactions. Using monthly returns for 233 hand-selected factor investing mutual funds and for the academic research factors during January 2006 (16 funds available) through September 2020 (207 funds available), they find that:

(more…)

Please or subscribe to continue reading...
Gain access to hundreds of premium articles, our momentum strategy, full RSS feeds, and more!  Learn more

Daily Email Updates
Login
Questions?