Bridge over ocean
1 September 2016 Financial Analysts Journal Volume 72, Issue 5

Will Your Factor Deliver? An Examination of Factor Robustness and Implementation Costs

  1. Noah Beck
  2. Jason Hsu
  3. Vitali Kalesnik
  4. Helge Kostka

The multifactor investing framework has become very popular in the indexing community. Both academic and practitioner researchers have documented hundreds of equity factors. But which of these factors are likely to profit investors once implemented? We find that many of the documented factors lack robustness. Size and quality, two of the more prominent factors, show weak robustness, whereas value, momentum, illiquidity, and low beta are more robust. Further examining implementation characteristics, we find that liquidity-demanding factors, such as illiquidity and momentum, are associated with significantly higher trading costs than are other factors. Investors may be better off accessing these factors through active management rather than indexation.

Read the Complete Article in Financial Analysts Journal Financial Analysts Journal CFA Institute Member Content

We're using cookies, but you can turn them off in Privacy Settings. Otherwise, you are agreeing to our use of cookies. Learn more in our Privacy Policy.