In this article, the authors measure the impact of estimation error on latent factor model forecasts of portfolio risk and factor exposures. In markets simulated with a Gaussian return generating process, the authors measure errors in forecasts for equally weighted and long-only minimum variance...

Risk-only investment strategies have been growing in popularity as traditional investment strategies have fallen short of return targets over the last decade. However, risk-based investors should be aware of four things. First, theoretical considerations and empirical studies show that...