Scientific Beta defends the role of the Size factor in multi-factor portfolios
Scientific Beta defends the role of the Size factor in multi-factor portfolios
Research shows that omitting the Size factor would be costly for investors
New research from Scientific Beta, the smart beta index provider, has shown that the Size factor improves model fit, delivers a significant positive premium in the presence of other factors, and contributes positively to the performance of multi-factor portfolios.
The Size effect is well established in the finance literature: stocks with smaller market capitalisation outperform large stocks over the long term. However, a common recommendation in the asset management industry is to remove Size from the factor menu, given its relatively weak post-publication performance.
Scientific Beta's analysis differs from recent studies by smart beta providers in assessing the relevance of the Size factor. Rather than asking which factor has the best stand-alone performance, we ask what the marginal impact of the Size factor is when including it in the menu along with other factors. In Scientific Beta's research, three different tests of the Size factor are considered:
1. Impact on model fit of asset pricing models. Exclusion of the Size factor from a multi-factor asset-pricing model leads to a 22% increase in the proportion of unexplained returns of portfolios sorted by characteristics. This suggests that excluding Size seriously deteriorates model fit.
2. Assessment of whether the Size premium remains intact when accounting for implicit exposures to other factors. We find that the Size premium is economically and statistically significant over the long-term US history when accounting for the presence of other commonly used equity factors.
3. Evaluation of the Size factor’s impact on optimal multi-factor portfolio performance. Size offers diversification benefits due to its low correlation with other factors. Due to diversification effects, the Size factor would keep a role in the optimal multi-factor portfolio even if the Size premium were lower than what has been observed historically.
In short, omitting the Size factor has substantial cost to investors, which often exceeds that of omitting other popular factors.
The Scientific Beta white paper can be accessed through the link below:
As part of its policy of transferring know-how to the industry, EDHEC-Risk Institute has set up Scientific Beta. 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.
Scientific Beta, 1 George Street, #15-02, Singapore 049145. For further information, please contact: email@example.com, Web: www.scientificbeta.com.
One Liberty Plaza - 165 Broadway
NY 10006 New York
GlobeNewswire is one of the world's largest newswire distribution networks, specializing in the delivery of corporate press releases financial disclosures and multimedia content to the media, investment community, individual investors and the general public.
Subscribe to releases from GlobeNewswire
Subscribe to all the latest releases from GlobeNewswire by registering your e-mail address below. You can unsubscribe at any time.
Latest releases from GlobeNewswire
Galapagos completes recruitment of NOVESA trial in systemic sclerosis5.12.2019 22:01:00 CET | Press release
Mechelen, Belgium; 5 December 2019, 22.01 CET – Galapagos NV (Euronext & NASDAQ: GLPG) has completed recruitment for the NOVESA Phase 2 clinical trial with GLPG1690. NOVESA is a double-blind, placebo-controlled Phase 2a trial evaluating the efficacy, safety and PK/PD of GLPG1690 in patients with systemic sclerosis (SSc), an autoimmune disease involving multiorgan fibrosis which has one of the highest mortality rates among rheumatic diseases1. NOVESA recruited 33 patients with diffuse cutaneous systemic sclerosis (dcSSc). One of the most visible manifestations is hardening of the skin. In dcSSc, the skin thickening is more widespread; these patients have a higher risk of developing fibrosis of multiple internal organs, including the lung. There are no approved drugs for this disease. SSc affects approximately 124,000 patients2 in the US and Europe3, with a predominance of female patients (>80%). The primary endpoint of NOVESA is the modified Rodnan Skin Score (mRSS) at 24 weeks. mRSS me
Aducanumab is good; next generation Alzheimer’s disease therapies will be better5.12.2019 18:50:00 CET | Press release
New data for aducanumab strengthens potential for Alzheimer’s therapy in near term, fuels next-generation therapies with more selective binding for toxic species of amyloid beta TORONTO and CAMBRIDGE, Mass., Dec. 05, 2019 (GLOBE NEWSWIRE) -- ProMIS Neurosciences, Inc. (TSX: PMN) (OTCQB: ARFXF), a biotechnology company focused on the discovery and development of antibody therapeutics targeting toxic oligomers implicated in the development of neurodegenerative diseases, commends Biogen for its trailblazing efforts to advance aducanumab. Data released today at CTAD (Clinical Trials on Alzheimer’s Disease conference) strengthen aducanumab’s potential to become the first disease-modifying therapy for Alzheimer’s disease. The data clearly underscore the need for next-generation drug candidates that offer more precise binding to the misfolded beta amyloid oligomer (AßO), the toxic species of the amyloid beta protein and root cause of Alzheimer’s disease. “Today’s presentation reflects yet ano
Olainfarm invites to Third Quarter 2019 Investor Conference Webinar5.12.2019 18:17:00 CET | Press release
JSC Olainfarm invites shareholders, investors, mass media representatives and other stakeholders to join its investor conference webinar scheduled on December 11, 2019 at 16:00 (EET). To join the webinar please follow the instructions below. Webinar will be hosted by the Chairman of Management Board Jeroen Weites and Investor Relations Advisor Janis Dubrovskis. The presentation will be held in English. During the webinar JSC Olainfarm representatives will inform about the recent performance of the company and financial results of third quarter and 9 months of 2019. After the presentation investors are welcome to ask questions. Due to the limited webinar time please send in your questions in advance to e-mail: firstname.lastname@example.org. What is a webinar? Webinar is a virtual conference, during which company’s representative gives information about the company, its activities and future plans. Webinar allows interactive communication and provides an opportunity to ask questions and get answe
Auction details Inflation-linked bonds5.12.2019 16:20:00 CET | Press release
Auction date December 12, 2019 Maturity date Loan ISIN code Coupon Issue volume, SEK million 2027-12-01 3113 SE0009548704 0.125% 500 Settlement date December 16, 2019 Bids have to be entered by 11.00 on December 12, 2019 Bid only through dealers approved by the Swedish National Debt Office For more information, please contact: The funding desk + 46 8 613 4780 email@example.com
Rockridge Receives Exploration Permit for its Raney Gold Project; Planning Drilling Program in Early 20205.12.2019 14:00:00 CET | Press release
VANCOUVER, British Columbia, Dec. 05, 2019 (GLOBE NEWSWIRE) -- Rockridge Resources Ltd. (TSX-V: ROCK) (“Rockridge” or the “Company”) is pleased to announce that it has received an Exploration Permit for its Raney Gold Project located in Ontario, Canada (the “Raney Gold Project” or “Property”). The permit provides for exploration activities including geophysical surveys and diamond drilling to be conducted over a 3-year period. Highlights: Rockridge option to earn a 100% interest in the Raney Gold Project Prospective gold property located ~110 km south west of the prolific gold district of Timmins, ON Limited historical exploration campaigns conducted on the Property; the last exploration activities occurred ~10 years ago when gold prices were in the US$900/oz. range Follow-up on historical drill results, best intercept returned ~6.5 g/t gold over 8m, open for expansion Planning initial ~2,500 metre drilling program in February – April 2020; potential to discover additional gold bearing
Svensk Hypotekspension Fond 3 AB (publ) – Early redemption of notes5.12.2019 12:00:00 CET | Press release
Press release 5 December 2019 Svensk Hypotekspension Fond 3 AB (publ) – Early redemption of notes Svensk Hypotekspension Fond 3 AB (publ) (the “Issuer”) informs that it intends to voluntarily redeem the SEK 2,000,000,000 Mortgage Backed Fixed Rate Notes with ISIN SE0007691621 (the “Notes”) before the first call date in accordance with the terms and conditions originally dated 6 February 2016 and as amended and restated 27 November 2019 (the “Terms and Conditions”). All outstanding Notes will be redeemed in full at their nominal amount, together with accrued but unpaid interest and an early call premium. The redemption date is expected to be 17 December 2019 (the “Redemption Date”). A notice of early redemption will today be circulated to the holders of the Notes and will be published on the website of the Issuer. The notice will be irrevocable but conditional upon the Issuer’s receipt of satisfactory evidence that the Issuer’s affiliate Svensk Hypotekspension Fond 4 AB (publ)’s notes w