Harvesting Risk Premia

NBIM from Norway have a nice summary of the main market anomalies discussed on this blog:

http://www.nbim.no/Global/Documents/Dicussion%20Paper/2012/DiscussionNote_8-12_Final.pdf

The anomalies are size, value, momentum and volatility (beta).

Excess annual returns from value, small cap and momentum are 4%, 3% and 8% respectively:

Capture

While the low beta out-performance has been about 4%.

Capture

Returns for the 4 factors over the last 2 decades are also displayed graphically, with all except Value contributing to the current bull run.  Notice the large “momentum crash” during the last recession.

Capture

The paper also covers integrating the factors for a large portfolio (pension fund).  It is well worth reading for an overview on how professional money managers approach fund design.

Advertisements

3 thoughts on “Harvesting Risk Premia

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s