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Research Insight - Introducing the Prospect Factor - December 2013

In this Research Insight, we introduce the Prospect factor. Systematic implementation of Prospect theory may be thought of as a contrarian investment strategy that takes long positions in stocks with poor historical performance and short positions in stocks with historical good performance. We find that the Prospect factor is significant in explaining risk and return characteristics of Japanese and US securities. The Prospect factor was identified as part of our Systematic Equity Strategies (SES) research program.