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Investing in a Multidimensional Market

Bruce I. Jacobs and Kenneth N. Levy

Financial Analysts Journal, 2014, vol. 70, issue 6, 6-12

Abstract: Many years ago, the authors demonstrated that there is much greater dimensionality to the stock market than is suggested by the one-factor capital asset pricing model. Investors today continue to underestimate the market’s dimensionality through their recent embrace of “smart beta” strategies. Such strategies assume a market in which a few chosen factors produce persistent returns. In reality, there are numerous factors that produce returns, which vary over time. Those returns can best be captured by a multidimensional approach that emphasizes diversification across many proprietary factors and continuous adjustment of exposures to those factors.

Date: 2014
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DOI: 10.2469/faj.v70.n6.5

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