Research Report

BarraOne Equity Risk Models

MSCI Blog

Equity factor investing aims to capture exposures to different equity risk premia. Factor modeling and factor investing are rooted in the Capital Asset Pricing Model (CAPM) dating from the mid-1960s, Arbitrage Pricing Theory from the 1970s and Fama and French’s three-factor model from the 1990s.

Research Report

Factor investing has become a widely discussed part of today’s investment canon. This paper is the first in a three-paper series focusing on factor investing. In this paper we lay out the rationale for factor investing and how indexation can capture factors in cost-effective and transparent ways.[1] [1] The next papers series cover various aspects of implementation including use cases we have seen.

Indexes

Research Report

This paper discusses the rationale for factor investing and how indexe can be constructed to reflect factor returns in cost-effective and transparent ways. We currently identify six equity risk factors that have historically earned a long-term risk premium and represent exposure to systematic sources of risk: Value, Low Size, Low Volatility, High Yield, Quality and Momentum.

Indexes

Research Report

The size premium has been widely used in asset allocation and in risk models for decades. However, some academics and practitioners have contested the validity of the size premium. They argue: 1) the size premium has disappeared in the last 20 years and no longer exists; 2) the size premium exists only in the United States and not in other markets; 3) the size premium disappears after filtering out smaller stocks for investability. In this paper, we refute these claims and examine ways of...

Indexes Portfolio Management Analytics

Research Report

Integrating ESG criteria into equity portfolios raises important portfolio construction questions. For example, what is the impact of ESG on portfolio performance and characteristics? How does it alter the risk profile and the factor exposures of portfolios? How does it affect institutional investors’ ability to pursue their investment strategy?  Our results show that integrating ESG criteria into passive strategies generally improved risk-adjusted performance over the period 2007 to...

Indexes ESG Products & Services Portfolio Management Analytics

MSCI Blog

Investors need a clear and consistent way to talk about factors. For more than 40 years, MSCI has defined how investors use factors to analyze risk and return, from individual stocks to entire portfolios. Factors are important drivers of portfolio performance and are well documented in academic research. They are used to quantify how much risk and return is attributable to different countries, sectors and styles.

Research Report

The quality factor has worked best in a "risk-off" market environment. Yet quality is not as well understood as other factors, despite being deeply embedded in Benjamin Graham’s value investing philosophy. In this Research Insight, we argue that the quality of a company can generally be evaluated along five key dimensions: Profitability, Earnings Quality, Financial Leverage, Asset Growth and Corporate Governance. Investors can replicate a variety of quality indexes, depending on their...

Indexes

Research Report

The perennial appeal of value investing is based on the excellent long-term performance of global value stocks. Investors today use various approaches to identify the exposure of stocks with “value” characteristics that help explain risk and return.  In this Research Insight, we create a common definition of “value” and examine how value strategies can be implemented, in both active and passive portfolios, using three generations of value indexes as examples.

Indexes Factor Indexes Value Weighted

MSCI Blog

Factor investing is now going multi-asset class: to factor-based asset allocation and systematic strategy factors that push beyond equity selection.