Desperately Seeking Pure Style Indexes

Noël Amenc, Robert Faff, Lionel Martellini: There is an urgent need for improved measurement and benchmarking of size and booktomarket (style) performance.


Noel Amenc

EDHEC Graduate School of Business and Misys Asset Management Systems

Robert Faff

Department of Accounting and Finance, Monash University

Lionel Martellini

EDHEC Graduate School of Business

Given the proliferation of choice, a potentially serious problem is that existing style indexes can provide a somewhat confusing picture of the return on these factors. In this paper, we present detailed evidence of strong heterogeneity in the information conveyed by competing indexes. We also report disturbing evidence that this heterogeneity poses serious problems, not only for modern portfolio analysis, but also for empirical tests of asset pricing theory. This is somewhat reminiscent of Roll’s (1977) critique of CAPM: if the “true” book-to- market and size factors are not observable, and if there is very little robustness with respect to the choice of the proxy used in empirical tests, then the relevance of these factors in asset pricing theory may never be empirically testable. As an attempt to address some of these problems, in exploratory analysis we suggest various methodologies designed to help extract a “pure style index” from competing index returns.
Desperately Seeking Pure Style Indexes...
(-1.00 B)
Type: Working paper
Date: le 01/01/2003
Extra information : For more information, please contact EDHEC Research and Development Department [ ]
Research Cluster : Finance

See Also

EDHEC - Risk’s annual European ETF and Smart Beta Survey results show growing demand for new developments in existing Smart Beta offerings
- 20-09-2018
EDHEC-Risk Institute has announced the results of the 11th EDHEC European ETF and Smart...
5 tips to kick-off your MBA successfully as an international student
- 18-09-2018
Whether your ambition is to boost your career, learn the latest in leadership, expand...
Asset Pricing Conference: Major Advances, Nobel Prize and Eminent experts
- 12-09-2018
EDHEC Business School, the Fama-Miller Center at Chicago Booth, and the Review of...
Riccardo Rebonato speaking on smart beta fixed income at 14th Quantitative Finance Conference
- 10-09-2018
Riccardo Rebonato, Professor of Finance, EDHEC Business School and Member, EDHEC-Risk...