Working Paper: CEPR ID: DP10824
Authors: Kees Koedijk; Alfred Slager; Philip Stork
Abstract: In this paper we investigate and evaluate factor investing in the United States and Europe for equities and bonds. We show that factor-based portfolios generally produce comparable or better portfolios than market indices. We expand the analysis to other asset classes and factors, work with other optimization methods and add a basic liability structure. The results remain robust when we add real estate and commodities to equities and bonds. Also, the results are not dependent to the removal of a specific factor. Finally, we study the results for a worldwide investor who invests beyond the US and Europe. Over the longer term and with consistently applied factor diversification, factor investing appears to be advantageous.
Keywords: European data; factor investing; optimization; timing
JEL Codes: G11; G12; G15; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| factor-based portfolios (G11) | market indices (G10) |
| factor investing (G11) | portfolio performance with added assets (G11) |
| understanding factors (D91) | investment process (G11) |