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Article

Robustness of Smart Beta Strategies

Noël Amenc, Felix Goltz, Sivagaminathan Sivasubramanian and Ashish Lodh
The Journal of Index Investing Summer 2015, 6 (1) 17-38; DOI: https://doi.org/10.3905/jii.2015.6.1.017
Noël Amenc
is the director of EDHEC-Risk Institute and CEO of ERI Scientific Beta in Singapore.
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  • For correspondence: noel.amenc@edhec-risk.com
Felix Goltz
is the head of applied research at EDHEC-Risk Institute and ERI Scientific Beta in Nice, France.
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  • For correspondence: felix.goltz@scientificbeta.com
Sivagaminathan Sivasubramanian
is a quantitative research analyst at ERI Scientific Beta in Nice, France.
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  • For correspondence: sivagaminathan.sivasubramanian@scientificbeta.com
Ashish Lodh
is a senior quantitative analyst at EDHEC-Risk Institute and ERI Scientific Beta in Nice, France.
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  • For correspondence: ashish.lodh@scientificbeta.com
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Abstract

There has been significant evidence that systematic equity investment strategies (so-called smart beta strategies) outperform the cap-weighted benchmarks in the long run. These strategies are usually marketed on the basis of outperformance. However, it is important to recognize that performance analysis is typically conducted on backtests that apply the smart beta methodology to historical stock returns. Concerning actual investment decisions, a relevant question is: How robust is the outperformance? The issue of robustness, as in extreme risk and performance attribution to well-defined risk factors, is not dealt with by index providers despite investors being wary of robustness of outperformance of various smart beta strategies. This article, with the use of single- and multi-factor indices, examines the causes of, and remedies for, lack of robustness and then provides a framework to evaluate the robustness of various smart beta strategies.

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The Journal of Index Investing: 6 (1)
The Journal of Index Investing
Vol. 6, Issue 1
Summer 2015
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Robustness of Smart Beta Strategies
Noël Amenc, Felix Goltz, Sivagaminathan Sivasubramanian, Ashish Lodh
The Journal of Index Investing May 2015, 6 (1) 17-38; DOI: 10.3905/jii.2015.6.1.017

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Robustness of Smart Beta Strategies
Noël Amenc, Felix Goltz, Sivagaminathan Sivasubramanian, Ashish Lodh
The Journal of Index Investing May 2015, 6 (1) 17-38; DOI: 10.3905/jii.2015.6.1.017
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  • Article
    • Abstract
    • POTENTIAL CAUSES OF LACK OF ROBUSTNESS
    • IMPROVING ROBUSTNESS
    • MEASUREMENT OF ROBUSTNESS
    • ENDNOTES
    • REFERENCES
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