From theory to practice: Polish equity risk factors and their implementation costs

Juliusz Jabłecki ()
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Juliusz Jabłecki: Uniwersytet Warszawski, Wydział Nauk Ekonomicznych; Narodowy Bank Polski

Bank i Kredyt, 2025, vol. 56, issue 5, 515-542

Abstract: This paper investigates the performance and implementability of equity factor strategies – value, momentum, quality, and low volatility (defensive) – in the Polish stock market over the 2014–2024 period. The ‘academic’ factors constructed as long-short portfolios are found to produce positive returns with low (or negative) correlation with the broad market. However, once transaction costs – including bid-ask spreads, commissions, and market impact – are incorporated, net factor returns deteriorate substantially, losing much of their appeal. The absence of a developed short-selling market in Poland further challenges the direct replication of traditional academic factor models. Despite these frictions, factor signals can still add value in a long-only framework, particularly when turnover constraints and liquidity filters are introduced. Backtests of factor-tilted portfolios demonstrate that smart beta-style implementations, especially those complemented by short positions in WIG20 index futures neutralizing market exposure, offer a viable alternative to pure long-short factor strategies.

Keywords: equity risk factors; factor investing; trading costs; market microstructure (search for similar items in EconPapers)
JEL-codes: G11 G14 G15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpbik:v:56:y:2025:i:5:p:515-542

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