Factor attribution based on linear regression often fails to satisfactorily explain the performance of systematic investment strategies. Sizeable attribution residuals that do not average out to zero over time suggest latent exposures to nonlinearities in factor returns. Our proposed adjustment...

The traditional active vs passive debate has been shaken up by the emergence of “smart beta” strategies. As the population of these products has exploded, the quest to differentiate among them has focused on portfolio construction techniques rather than what actually matters, namely...

We investigate whether structurally hedging the currency risk of global equity products benefits long-term investors. Based on a 35 year back-test of 3 smart beta strategies from 6 currency perspectives, our answer is a qualified “yes”. Currency hedging was effective in reducing risk and...

We customize factor attribution for quantitative equity portfolios to better align the measurement of factor returns with how factor tilts were taken on. Specifically, we provide a theoretical argument for including the absolute value of factor exposures in the attribution to account for the...

We propose an adjustment of standard regression-based factor attribution to address a common issue: implementation constraints often mean that investors cannot realize the full potential of a factor strategy, but standard attribution analysis assumes that they can – leaving part of the...

Low-risk stocks have historically outperformed high-risk stocks, delivering better long-term returns with less volatility. This counter-intuitive effect has persisted since 1926, violating one of the basic tenets of Finance Theory. We investigate the role of country and sector effects in...