Historically, manager skill has been measured simply as the difference in average returns between the portfolio and the benchmark index. Managers were considered skillful if their active weights against the benchmark led to outperformance. However, a manager tilting toward a certain risk-factor,...

After reviewing the methodologies behind the more popular quantitative investment strategies offered to investors as passive equity indices, the authors devised an integrated evaluation framework. They found that the strategies outperform their cap-weighted counterparts largely owing to exposure...

Twenty years ago there were only five equity factors (market, value, small-cap, momentum, and low beta). Today the literature contains research papers on hundreds of supposed factors, most of which will not produce a reliable positive premium in the future. Rather than adopting a statistical...

Unlike standard factors, such as value, momentum, and size, quality lacks a commonly accepted definition. Practitioners, however, are increasingly gravitating to the style, defining quality as multi-signal for which some of the signals have been thoroughly explored in academic literature and...

Value stocks outperform growth stocks. The academic literature provides two competing interpretations on what drives the value premium: exposure to risk factors or mispricing of securities. Existing empirical studies, which are largely based on U.S. data, have not conclusively rejected one...

After reviewing the methodologies behind the more popular quantitative investment strategies offered to investors as passive equity indices, the authors devised an integrated evaluation framework. They found that the strategies outperform their cap-weighted counterparts largely owing to exposure...

For investors using a core–satellite approach to strategic asset allocation, traditional style indices, such as value and small-cap indices, represent convenient passive vehicles for achieving strategic or even tactical portfolio tilts. In this article, the authors examine traditional style...

Standard risk management approaches fail to consider parameter uncertainty, which has led to improper risk management. Blind faith in parameter estimates has too often led to blind faith in the resulting VAR outputs, and when these estimates are too often exceeded the proposed solution is...

Managing risk successfully requires a detailed understanding of the distributions from which random shocks to asset prices are drawn. However, there is uncertainty in both the actual distribution of returns and the parameters characterizing the distribution. In this chapter, we focus on the...

In historical testing, valuation-indifferent indexing produces statistically significant and economically large outperformance relative to traditional capitalization-weighted indexes. This result has been found for both U.S. and global equity data, as well as U.S. corporate bonds and emerging...