Factor investing: a unified view

ABSTRACT

A unified view of factor investing is presented. By examining the levels of exposure to a set of factors collectively, we construct enhanced factor portfolios from conventional single-factor portfolios that substantially increase factor risk premia consistently for nearly five decades in the US equity data. Detailed comparison between these and multifactor portfolios is conducted, and we find that a form of the latter delivers superior return performance. In particular, we present the outperformance of the signal-blended multifactor portfolio for various return measures over all factor portfolios considered at a statistical significance level of 1%.

KEYWORDS:

• Factor investing
• factor risk premia
• factor exposure
• multifactor portfolio
• US equity market

JEL CLASSIFICATION:

• C18
• G11

Acknowledgment

This work was supported by the National Research Foundation of Korea (NRF) grant funded by the Korea government (MSIT) (No. 2020R1F1A1A0106053811).

Disclosure statement

No potential conflict of interest was reported by the author.

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Additional information

Funding

This work was supported by the National Research Foundation of Korea (NRF) grant funded by the Korea government (MSIT) [2020R1F1A1A0106053811].