Factor Investing Funds: Replicability of Academic Factors and After-Cost Performance

46 Pages Posted: 2 Feb 2023 Last revised: 13 Apr 2023

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame; ECGI

Yuekun Liu

Aalto University School of Business

Timothy B. Riley

University of Arkansas - Department of Finance

Date Written: November 1, 2022

Abstract

Do factor investing funds successfully capture the premiums associated with academic factors? We explore this question using the growing number of factor investing funds that seek to capture those premiums. While, on average, such funds do not outperform, we find that the factor investing funds with the portfolios that most closely match their academic factors—determined using our novel, holding-based ‘active characteristic share’ measure—significantly outperform those that less closely match. Furthermore, adjusting for stock size, we conclude that the answer to our question is “yes” for closely matching factor investing funds, which net of costs duplicate the paper performance of the long side of academic factors.

Keywords: Mutual fund, factor investing, alpha, active share, cost

Suggested Citation

Cremers, K. J. Martijn and Liu, Yuekun and Riley, Timothy Brandon, Factor Investing Funds: Replicability of Academic Factors and After-Cost Performance (November 1, 2022). Available at SSRN: https://ssrn.com/abstract=4346421 or http://dx.doi.org/10.2139/ssrn.4346421

K. J. Martijn Cremers

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Yuekun Liu

Aalto University School of Business ( email )

Ekonominaukio 1
Espoo, 02150
Finland

Timothy Brandon Riley (Contact Author)

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

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