Reference
Kaiser, L., & Peter, G. (2019). Riding the 1/N Premium.
Publication type
Working Paper
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.'
Persons
Organizational Units
- Chair in Business Administration, Banking and Financial Management
- Institute for Finance