australiaen

Risk factor

In factor investing, the term 'factor premium' can be replaced with 'risk factor' or 'risk premium', on the supposition that a factor premium represents compensation for higher risk.

However, the question remains as to whether the premiums actually represent compensation for higher risk or whether other aspects also play a role. If the first is true, the term risk factor is appropriate. This is in line with the belief in an efficient market, where returns and risk go hand in hand.

However, Robeco prefers the term 'factor premium', as it is not always necessary to take more risk to earn such premiums. The most familiar example is the low-volatility factor (low vol). While investors actually take less risk using this factor, the returns they can expect match the market.

Quantitative investing: invisible layers surface to deliver attractive returns
Quantitative investing: invisible layers surface to deliver attractive returns
Read more
Factoring carbon taxes into a Value strategy
Factoring carbon taxes into a Value strategy
Incorporating carbon taxes into a Value strategy at a stock level is equivalent to imposing carbon footprint constraints on the overall portfolio.
22-12-2021 | Research
Research on pre-1926 database reveals equity factors are ‘eternal’
Research on pre-1926 database reveals equity factors are ‘eternal’
New research reveals that equity factor styles have existed and persisted since the mid-19th century.
21-12-2021 | Research
Talk ‘22: ‘Staying the course is crucial’
Talk ‘22: ‘Staying the course is crucial’
Covid-19 has shown us that it is important to stick to our approach, says Wilma de Groot, Co-head of Quant Equity Portfolio Management.
17-12-2021 | Interview