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.

Author(s) :

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

[Insider View] Student Experience - Discovering Berlin entrepreneurial ecosystem
- 15-03-2018
Floriane de Malestroit (third on the right), EDHEC MSc in Entrepreneurship &...
- 14-03-2018
Joëlle Vanhamme, Professor of Marketing at EDHEC Business School, has been a member of...
- 09-03-2018
The MSc in Data Analytics & Digital Business programme is proud to announce its partnership with Ecole 42. Co-founded by Xavier Niel, Ecole 42 is a novel and disruptive...
EDHEC Global MBA ranked 40th best MBA for women by the Financial Times
- 07-03-2018
This result reflects EDHEC’s enduring determination to support women in their career...