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Unrewarded risks

Higher risk that is not rewarded with higher returns.

Investors should strive to avoid unrewarded risk in their selection process, as this is not compensated for with any kind of payoff in the form of higher returns.

An example of taking unrewarded risk is to buy cheap stocks of companies with a higher risk of default. It may appear that these are value stocks that enable the investor to benefit from a value premium, but our research shows* such stocks are very risky. Investors do not benefit from the value premium because they are not compensated for this higher level of risk with a higher return.

* W. de Groot and J. Huij: ‘Is the Value Premium Really a Compensation for Distress Risk?’, 2011

Quantitative investing: invisible layers surface to deliver attractive returns
Quantitative investing: invisible layers surface to deliver attractive returns
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Looking under the bonnet of passive thematic indices
Passive thematic indices effectively trade against quant investors due to their generally negative exposures to factors.
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Podcast: Why quant fixed income is a great diversifier
Podcast: Why quant fixed income is a great diversifier
While many quant equity strategies have struggled over the past few years, the performance of quant credits has been robust.
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What valuations and interest rates tell us about equity factors
What valuations and interest rates tell us about equity factors
Single and multi-factor equity portfolios are currently very attractively valued and factor premiums persist across interest rate cycles.
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