Facts About Factors

6 Apr 2015
By MIT Sloan School of Management

This paper examines the potential advantages of factor allocation, taking into account the fact that the reasoning behind doing so is often misguided. The authors examine the sources of error that would indicate why investors would choose to allocate their portfolios to factors instead of assets. The authors also tested whether factor allocation provides noise-reduction benefits or stability benefits, and factor allocation failed to offer either of those two benefits.

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