RT Journal Article
SR Electronic
T1 Smart Beta Efficiency versus Investability: <em>Introducing the Cost-Adjusted Factor Efficiency Ratio</em>
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 6
OP 18
DO 10.3905/jii.2017.8.1.006
VO 8
IS 1
A1 Daniel Ung
YR 2017
UL https://pm-research.com/content/8/1/6.abstract
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