PT  - JOURNAL ARTICLE
AU  - Daniel Ung
TI  - Smart Beta Efficiency versus Investability: <em>Introducing the Cost-Adjusted Factor Efficiency Ratio</em>
AID  - 10.3905/jii.2017.8.1.006
DP  - 2017 May 31
TA  - The Journal of Index Investing
PG  - 6--18
VI  - 8
IP  - 1
4099  - https://pm-research.com/content/8/1/6.short
4100  - https://pm-research.com/content/8/1/6.full
AB  - Increasing factor exposure is generally desirable, ceteris paribus, but it often comes at a cost; those costs may include expenses arising from more regular rebalancing or purchasing less liquid stocks. For this reason, there is a necessary trade-off between increasing exposure and greater investability. In this article, the author focuses on the financial trade-off between achieving greater targeted exposure and ensuring investability. To this end, he introduces a new smart beta metric—the cost-adjusted factor efficiency ratio—as an adaptation to the metric Hunstad and Dekhayser proposed in order to acknowledge such a trade-off.TOPICS: Factor-based models, performance measurement