IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v21y2021i6p893-909.html
   My bibliography  Save this article

Smart Alpha: active management with unstable and latent factors

Author

Listed:
  • C. Boucher
  • A. Jasinski
  • P. Kouontchou
  • S. Tokpavi

Abstract

Factor investing has attracted increasing interest in the investment industry because purely active and passive solutions have underperformed. Its success depends critically on identifying the factors involved and timing this well, but this is hard to do because there is such a zoo of factors, and those factors and their loadings are time-varying. We thus propose an investment rule that we call ‘Smart Alpha’, which avoids betting on a-priori factors but focuses instead on an active approach that minimises the exposure of the portfolio to systematic sources of risk while maximising its alpha. This means our choice is to bet on alphas instead of alternative betas. We use stocks in the European STOXX 600 universe to show empirically that the Smart Alpha portfolio dominates many popular European factor investing indexes and smart beta strategies.

Suggested Citation

  • C. Boucher & A. Jasinski & P. Kouontchou & S. Tokpavi, 2021. "Smart Alpha: active management with unstable and latent factors," Quantitative Finance, Taylor & Francis Journals, vol. 21(6), pages 893-909, June.
    • Handle: RePEc:taf:quantf:v:21:y:2021:i:6:p:893-909
    DOI: 10.1080/14697688.2020.1868558
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/14697688.2020.1868558
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/14697688.2020.1868558?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:21:y:2021:i:6:p:893-909. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.