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EDHEC-Risk Institute: EDHEC Risk Institute releases major new research on misconceptions in smart beta investing

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EDHEC Risk Institute has released a major new research publication on
misconceptions in smart beta investing. The research reviewsten common but
mistaken claims about smart beta that present risks for
and sheds light on underlying issues.

The ten misconceptions, in three separate areas of smart beta performance and
risk, are the following:

Performance drivers

* The hiding game: "smart beta generates alpha"
* The monkey portfolio claim: "anything beats cap-weighted market indices"
* The value and size myth: "all smart beta performance comes from value and
small-cap exposure"
* The rebalancing fantasy: "smart beta outperforms because it trades against
mean reversion"

Investability hurdles

* The liquidity concern: "smart beta requires positions to be held in highly
illiquid stocks"
* The turnover critique: "smart beta necessarily leads to high turnover"
* The crowding hypothesis: "if everyone knows about smart beta the benefits
will disappear"

Strategy design choices

* The concentration fallacy: "a good factor index should provide a strong
tilt to the desired factor"
* The factor fishing licence: "a good factor index requires a sophisticated
scoring approach"
* The factor purity argument: "a good factor index needs to isolate exposure
to the target factor"

The objective of the research is to provide perspective on these beliefs by
examining conceptual considerations and empirical evidence. The analysis
shows that, more often than not, superficially convincing claims about smart
beta strategies stand on shaky foundations. Challenging conventional wisdom
by reviewing the extant academic literature and empirical evidence would lead
to more balanced conclusions and a more nuanced understanding of the benefits
and risks of smart beta strategies.

To view a webinar on "Ten Misconceptions in Smart Beta Investing," please

The "Ten Misconceptions in Smart Beta Investing" research publication is

As part of its policy of transferring know-how to the industry, EDHEC-Risk Institute has set up ERI Scientific Beta. ERI Scientific Beta is an original initiative which aims to favour the adoption of the latest advances in smart beta design and implementation by the whole investment industry. Its academic origin provides the foundation for its strategy: offer, in the best economic conditions possible, the smart beta solutions that are most proven scientifically with full transparency of both the methods and the associated risks.

ERI Scientific Beta, 1 George Street, #07-02, Singapore 049145. For further information, please,



This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: EDHEC-Risk Institute via Globenewswire


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