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1.
What is one consequence of factor-based investing?
The hurdle for being declared a truly skilled manager has risen over time. Today, studies looking for evidence of skill in equity mutual funds control for exposure to size, value, and momentum factors. In other words, if a manager's excess returns come during times that value, smaller-cap, or momentum stocks outperform, the procedure will adjust the "excess" return to zero.
2.
Research has found that the stronger the factor attribute (such as momentum, quality, etc.), _______.
The higher the excess return. The stronger the factor attribute, the higher the excess return.
3.
Rational factor theory deals with how the market prices _______.
Risks. Factor investing is thus about finding the optimal portfolio of factor risks.
4.
Style investing is a kind of factor investing that deals with _______.
Two factors -- size (large-small) and value (value-growth).
5.
What is a factor?
An attribute of an asset that both explains and produces excess return. An attribute of an asset that both explains and produces excess return.
