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Research Insight - Capturing Factor Premia - April 2014

categories: Portfolio Management Analytics, Americas, EMEAI, Asset Allocation and Asset Liability Management, Factor and Risk Modeling, Investing (Investment Management), Portfolio Construction and Optimization, Asia Pacific, PMA, Equities, Equity Risk Models, Research Paper, MELAS Dimitris, LEE Jyh-Huei, Indexes, RUBAN Oleg, Equity Models, general

Using the lens of the Barra US Equity Model (USE4S), this Research Insight provides a practical guide to constructing investable factor portfolios. This paper begins by discussing the general concept of a factor portfolio. We then explore the role of optimization in making a 'pure factor portfolio' investable. We assess how investability constraints impact the performance of factor-replicating portfolios. Finally, we discuss how MSCI Market Neutral Barra Factor Indexes can be used in an investment process to track factor returns.

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