Factor Investing II

  • Henrik Lumholdt


This chapter continues the analysis of factor investing, focusing on two main questions. Firstly, what gives rise to factor returns and are these returns likely to be persistent? Secondly, which are the key issues to be considered in the practical implementation of factor investing?


  1. Amihud, Yakov, and Haim Mendelson. 1986. “Asset Pricing and the Bid–Ask Spread”, Journal of Financial Economics, December, 17(2), 223–249.Google Scholar
  2. Arnott, Rob, Noah Beck, Vitali Kalesnik, and John West. 2016a. “How Can ‘Smart Beta’ Go Horribly Wrong?”, Research Affiliates, February.Google Scholar
  3. Arnott, Robert D., Noah Beck, and Vitali Kalesnik. 2016b. “To Win with ‘Smart Beta’ Ask If the Price Is Right”, Research Affiliates, June.Google Scholar
  4. Asness, Clifford S. 2016a. “The Siren Song of Factor Timing”, The Journal of Portfolio Management, Special QES Issue, 42(5), 1–6.Google Scholar
  5. Asness, Clifford S. 2016b. “My Factor Philippic”, AQR Capital Management.Google Scholar
  6. Asness, Clifford S., Swati Chandra, Antti Ilmanen, and Ronen Israel. 2017. “Contrarian Factor Timing is Deceptively Difficult”, The Journal of Portfolio Management, 43, 72–87.CrossRefGoogle Scholar
  7. Baker, Malcolm, Brendan Bradley, and Jeffrey Wurgler. 2011. “Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly”, Financial Analysts Journal, 67(1), 40–54.CrossRefGoogle Scholar
  8. Banz, R. 1981. “The Relationship Between Return and Market Value of Common Stock”, Journal of Financial Economics, 9, 3−18.CrossRefGoogle Scholar
  9. Barberis, Nicholas, Andrei Shleifer, and Robert Vishny. 1998. “A Model of Investor Sentiment”, Journal of Financial Economics, 49(3), 307–343.CrossRefGoogle Scholar
  10. Barberis N., and M. Huang. 2001. “Mental Accounting, Loss Aversion, and Individual Stock Returns”, Journal of Finance, 56, 1247–1292.CrossRefGoogle Scholar
  11. Bender, Jennifer, and Taie Wang. 2016. “Can the Whole Be More than the Sum of the Parts? Bottom-Up Versus Top-Down Multifactor Portfolio Construction”, The Journal of Portfolio Management, 42(5), 39–50CrossRefGoogle Scholar
  12. Black, Angela J., Bin Mao, and David G. McMillan. 2009. “The Value Premium and Economic Activity: Long-Run Evidence from the United States”, Journal of Asset Management, 10(5), 305–317.CrossRefGoogle Scholar
  13. Cahan, Rochester, and Yin Luo. 2013. “Standing Out from the Crowd: Measuring Crowding in Quantitative Strategies”, Journal of Portfolio Management, 39, 14–23.CrossRefGoogle Scholar
  14. Chan, K. C., and Nai-Fu Chen. 1991. “Structural and Return Characteristics of Small and Large Firms”, The Journal of Finance, 46.Google Scholar
  15. Chen, Nai-fu, and Feng Zhang. 1998. “Risk and Return of Value Stocks”, Journal of Business, 71(4).Google Scholar
  16. Chordia, T., and L. Shivakumar. 2002. “Momentum, Business Cycle and Time-Varying Expected Returns”, Journal of Finance, 57, 985–1019.CrossRefGoogle Scholar
  17. Daniel, Kent, David Hirshleifer, and Avanidhar Subrahmanyam. 1998. “Investor Psychology and Security Market Under- and Overreactions”, Journal of Finance, 53, 1839–1886.CrossRefGoogle Scholar
  18. Dasgupta, Amil, Andrea Prat, and Michela Verardo. 2011. “The Price Impact of Institutional Herding”, Review of Financial Studies, 24(3), 892–925.CrossRefGoogle Scholar
  19. De Bondt, W., and R. Thaler. 1985. “Does the Stock Market Overreact?”, Journal of Finance, 40, 793–805.CrossRefGoogle Scholar
  20. De Long, J. B., A. Shleifer, L. Summers, and R. Waldmann. 1990. “Noise Trader Risk in Financial Markets”, Journal of Political Economy, 98, 703–738.CrossRefGoogle Scholar
  21. Dichev, I. D. 1998. “Is the Risk of Bankruptcy a Systematic Risk?”, The Journal of Finance, 53(3), 1131–1147.CrossRefGoogle Scholar
  22. Fama, E. F., and K. R. French. 1995. “Size and Book-to-Market Factors in Earnings and Returns”, Journal of Finance, 50(1), 131–155.CrossRefGoogle Scholar
  23. Fama, E. F., and K. R. French. 1998. “Value Versus Growth: The International Evidence”, The Journal of Finance, 1975–1999.Google Scholar
  24. Frazzini, A., and L. Pedersen. 2014. “Betting Against Beta”, Journal of Financial Economics, 111, 1–25.CrossRefGoogle Scholar
  25. George, Thomas, and Chuan-Yang Hwang. 2004. “The 52-Week High and Momentum Investing”, Journal of Finance, 59, 2145–2176.CrossRefGoogle Scholar
  26. Harvey, C. R., Y. Liu, and H. Zhu. 2016. “… and the Cross-Section of Expected Returns”, The Review of Financial Studies, 29(1), 5–68.Google Scholar
  27. Hong, Harrison, and Jeremy C. Stein. 1999. “A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets”, Journal of Finance, 54, 2143–2184.CrossRefGoogle Scholar
  28. Hou, Kewei, Chen Xue, and Lu Zhang. 2017. “Replicating Anomalies”, NBER Working Paper No. 23394.Google Scholar
  29. Hsu, J. C., H. Kudoh, T. Yamada. 2013. “When Sell-Side Analysts Meet High-Volatility Stocks: An Alternative Explanation for the Low-Volatility Puzzle”, Journal of Investment Management, 11(2), 28–46.Google Scholar
  30. Ilmanen, Antti, and Jared Kizer. 2012. “The Death of Diversification Has Been Greatly Exaggerated”, Journal of Portfolio Management, Spring, 38(3), 15–27.Google Scholar
  31. Israel, Ronen, and Adrienne Ross. 2017. “Measuring Factor Exposures: Uses and Abuses”, The Journal of Alternative Investments, 20(1), 10–25.CrossRefGoogle Scholar
  32. Jensen, Gerald, and Jeffrey Mercer. 2002. “Monetary Policy and the Cross-Section of Expected Stock Returns”, Journal of Financial Research, Spring, 55, 125–139.Google Scholar
  33. Kumar, Alok. 2009. “Who Gambles in the Stock Market?”, Journal of Finance, August, 64(4), 1889–1933.Google Scholar
  34. Lakonishok, Josef, Andrei Shleifer, and Robert W. Vishny. 1992a. “The Impact of Institutional Trading on Stock Prices”, Journal of Financial Economics, 32, 23–43.CrossRefGoogle Scholar
  35. Lakonishok, Josef, Andrei Shleifer, and Robert W. Vishny. 1992b. “The Structure and Performance of the Money Management Industry”, Brookings Papers on Economic Activity: Microeconomics. Google Scholar
  36. Lakonishok, J., A. Shleifer, and R. W. Vishny. 1994. “Contrarian Investment, Extrapolation, and Risk”, Journal of Finance, 49, 1541−1578.CrossRefGoogle Scholar
  37. La Porta, Rafael, Josef Lakonishok, Andrei Shleifer, and Robert Vishny. 1997. “Good News for Value Stocks: Further Evidence on Market Efficiency”, Journal of Finance, 52, 859–874.CrossRefGoogle Scholar
  38. Liu, W. 2006. “A Liquidity-Augmented Capital Asset Pricing Model”, Journal of Financial Economics, 82(3), 631–671.CrossRefGoogle Scholar
  39. Liu, X., and L. Zhang. 2008. “Momentum Profits, Factor Pricing, and Macroeconomic Risk”, Review of Financial Studies, 21, 2417–2448.CrossRefGoogle Scholar
  40. Lo, A., and A. MacKinlay. 1990. “Data-Snooping Biases in Tests of Financial Asset Pricing Models”, Review of Financial Studies, 3, 431–467.CrossRefGoogle Scholar
  41. Shleifer, A., and R. Vishny. 1990. “Equilibrium Short Horizons of Investors and Firms”, American Economic Review Papers and Proceedings, 80, 148–153.Google Scholar
  42. Yee, Kenton K. 2010. “Combining Fundamental Measures for Stock Selection”, in Handbook of Quantitative Finance and Risk Management, Springer.Google Scholar
  43. Zhang, Lu. 2005. “The Value Premium”, The Journal of Finance, 60(1), 67–102.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Henrik Lumholdt
    • 1
  1. 1.Instituto de Empresa Business SchoolMadridSpain

Personalised recommendations