Smart Alpha: active management with unstable and latent factors

C. Boucher, A. Jasinski, P. Kouontchou and S. Tokpavi

Quantitative Finance, 2021, vol. 21, issue 6, 893-909

Abstract: Factor investing has attracted increasing interest in the investment industry because purely active and passive solutions have underperformed. Its success depends critically on identifying the factors involved and timing this well, but this is hard to do because there is such a zoo of factors, and those factors and their loadings are time-varying. We thus propose an investment rule that we call ‘Smart Alpha’, which avoids betting on a-priori factors but focuses instead on an active approach that minimises the exposure of the portfolio to systematic sources of risk while maximising its alpha. This means our choice is to bet on alphas instead of alternative betas. We use stocks in the European STOXX 600 universe to show empirically that the Smart Alpha portfolio dominates many popular European factor investing indexes and smart beta strategies.

Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/14697688.2020.1868558 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:21:y:2021:i:6:p:893-909

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697688.2020.1868558

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().