Strategic allocation to premiums in the equity market

Strategic allocation to premiums in the equity market

01-07-2011 | Research

In this note we show that the theoretically optimal strategic allocation to such premiums is sizable, even when using highly conservative ssumptions regarding their future expected magnitude. We also discuss the pros and cons of two ways of obtaining exposure to these premiums in practice, specifically passively managed ‘smart beta’ funds versus actively managed quant funds.

  • David Blitz
    Head of Quant Research

Examples of such premiums that have been documented for the equity market are the size, value, momentum and low-volatility effects.

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