Factorbased investing focuses on specific risk factors from "summary" of Institutional Investment Management by Frank J. Fabozzi
Factor-based investing is a popular strategy that has gained traction in recent years among institutional investors. This approach involves focusing on specific risk factors that are believed to drive returns in the market. By targeting these factors, investors aim to achieve better risk-adjusted returns compared to traditional market-cap-weighted strategies.
The concept of factor-based investing is rooted in the idea that different factors, such as value, momentum, and size, can explain the variation in asset returns. By constructing portfolios that tilt towards these factors, investors can potentially outperform the market over the long term. This approach is based on the premise that certain risk factors are persistent and can be exploited to generate excess returns.
Factor-based investing relies on a systematic and rules-based approach to portfolio construction. Instead of relying on intuition or subjective judgment, investors use qua...
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