RT Journal Article
SR Electronic
T1 Robustness of Smart Beta Strategies
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 17
OP 38
DO 10.3905/jii.2015.6.1.017
VO 6
IS 1
A1 Noël Amenc
A1 Felix Goltz
A1 Sivagaminathan Sivasubramanian
A1 Ashish Lodh
YR 2015
UL https://pm-research.com/content/6/1/17.abstract
AB There has been significant evidence that systematic equity investment strategies (so-called smart beta strategies) outperform the cap-weighted benchmarks in the long run. These strategies are usually marketed on the basis of outperformance. However, it is important to recognize that performance analysis is typically conducted on backtests that apply the smart beta methodology to historical stock returns. Concerning actual investment decisions, a relevant question is: How robust is the outperformance? The issue of robustness, as in extreme risk and performance attribution to well-defined risk factors, is not dealt with by index providers despite investors being wary of robustness of outperformance of various smart beta strategies. This article, with the use of single- and multi-factor indices, examines the causes of, and remedies for, lack of robustness and then provides a framework to evaluate the robustness of various smart beta strategies.TOPICS: Passive strategies, analysis of individual factors/risk premia, performance measurement