Trends in academic research are steering portfolio management to a more factor-based approach, challenging concepts of risk and return, and bringing more transparency and expectations of better performance. Investment approaches considered generators of alpha, or outperformance, now have been seen by academics as generators of beta, or market exposures and drivers of market returns.
Malcolm P. Baker, Robert G. Kirby Professor of Business Administration, Harvard Business School, and director of research, Acadian Asset Management LLC, Boston, finds a puzzle in the lack of arbitrage between high- and low-risk stocks.
Academics debate the underlying reason for elements of factor-based investing, including size, value, liquidity and profitability, said Tobias J. Moskowitz, Fama Family professor of finance, University of Chicago, Booth School of Business and research consultant of AQR Capital Management LLC, Greenwich, Conn.
The markets currently look “resilient,” a condition that should give investors confidence to pursue aggressive risk-seeking strategies with little chance of a shock exposing them unprepared for loss, according to Mark Kritzman.