Applications of Systematic Indices in the Investment Process

categories: Asset Allocation and Asset Liability Management, Investing (Investment Management), Risk Management, Equities, Research Paper, MELAS Dimitris, Indexes, KANG Xiaowei

Systematic factors account for a substantial part of long-term portfolio performance. While market-cap indices represent effective instruments to capture the market beta, systematic indices are important tools to capture additional style and strategy betas. A factor based approach to asset allocation is increasingly gaining recognition among institutional investors. Systematic indexes could facilitate the implementation of such factor based asset allocation, by enabling investors to capture systematic risk premia in a disciplined and cost-effective fashion. In this paper, we review various systematic equity indices and examine their potential practical applications in the institutional investment process.

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