Despite extensive research support, the role of diversification in current factor investing strategies remains neglected. This paper investigates whether well-designed multifactor portfolios should not only be based on firm characteristics, but should also include portfolio diversification...

In a recent discussion about efficient ways to combine multiple firm characteristics into a multifactor portfolio, a distinction was made between the bottom-up and top-down approach. Both approaches integrate characteristics with equal weights and ignore interaction effects from differences in...

The successful active portfolio manager has to have at least two main competencies: Felicitous asset allocation choice and the competence to do so at the right point in time. Based on an extension of Grinold and Kahn’s Fundamental Law of Active Management, this paper describes a method to...