Cross-sectional volatility is given by the standard deviation of a set of asset returns over a single time period. CSV is critical because it represents the opportunity to outperform a benchmark. In this Research Insight, we present an exact methodology for decomposing CSV into contributions...

In this paper we examine three approaches for capturing equity risk premia. In the "simple" approach, the manager goes long stocks with positive exposure and shorts stocks with negative exposure, but makes no effort to control for other exposures or to minimize risk. In the "pure" approach, the...

The authors present an exact methodology for decomposing cross-sectional volatility into contributions from various factors. Treating country, industry, and style factors equally, they used their framework to investigate several relevant issues in the global equity markets, including the...

The Markowitz mean-variance framework is the foundation of modern portfolio theory. One problem with this approach, however, is how sample covariance matrices tend to underestimate risk. Since the biases of optimized portfolios are closely related to eigenfactor portfolios, we present a...

We investigate the relative strength of industry versus country effects in the global equity markets during the sample period 1994-2010. In particular, we examine three market segments: (a) the world market, (b) emerging markets, and (c) developed Europe. We employ a factor-based approach to...

While performance analysis is typically conducted on a benchmark-relative basis, risk analysis is often presented on an absolute-return basis. This mismatch between sources of risk and return leads to the pitfall that active management decisions cannot be evaluated on a risk-adjusted basis. In...