This article presents a framework for allocating partial tracking errors to investment decisions in order to maximize the expected information ratio of an actively managed portfolio. The tracking error allocation framework is a three–step process: 1) identifying the independent investment...

We propose a practical investment framework for dynamic asset allocation across different economic regimes, which we illustrate using a sample of U.S. data from 1948 to 2007. We identify four regimes in the economic cycle and find that these regimes capture pronounced time-variation in the risk...

In this study we evaluate the performance of actively managed equity mutual funds against a set of passively managed index funds. We find that the return spread between the best performing actively managed funds and a factor-mimicking portfolio of passive funds is positive and as large as 3 to 5...

Some exchange-traded funds (ETFs) are specifically designed for harvesting factor premiums, such as the size, value, momentum and low-volatility effects. Other ETFs, however, may implicitly go against these factors. This paper analyzes the factor exposures of US equity ETFs and finds that,...

This paper seeks to uncover the drivers of the idiosyncratic momentum anomaly. We show that: (I) idiosyncratic momentum is a distinct phenomenon that exists next to conventional momentum and is not explained by it; (ii) idiosyncratic momentum is priced in the cross-section of stock returns after...

The added value of smart beta indices is known to be explained by exposures to established factor premiums, but does that make these indices suitable for implementing a factor investing strategy? This paper finds that the amount of factor exposure provided by popular smart beta strategies...

Some exchange-traded funds (ETFs) are specifically designed for harvesting factor premiums, such as the size, value, momentum, and low-volatility effects. Other ETFs, however, may implicitly go against these factors. This paper analyzes the factor exposures of U.S. equity ETFs and finds that,...

We show that the performance of a fundamental index with annual rebalancing, as proposed by Arnott, Hsu and Moore (2005), can be highly sensitive to the subjective choice of when to rebalance. For the year 2009, for example, we find that a fundamental index rebalanced every March outperformed...

In this paper we examine a momentum strategy based on residual stock returns. We find that residual momentum exhibits risk-adjusted profits that are about twice as large as those associated with total return momentum. Moreover, we find that the main arguments that have been put forward in the...

In this paper we examine a momentum strategy based on residual stock returns. We find that residual momentum exhibits risk-adjusted profits that are about twice as large as those associated with total return momentum. Moreover, we find that the main arguments that have been put forward in the...