Long only SV funds provide full exposure to the market factor and partial exposures to size and value. Typical loadings might be 1.0, 0.3, 0.3A small value fund doesn’t provide diversification of risk, it concentrates risk into a small corner of the market. It also doesn’t provide unique and independent sources of risk, since the small value fund is well correlated to the market. You have to use the long-short version of factors to get uniqueness and independence.Would you rather have all your risk concentrated in the single equity market factor, or would you prefer being diversified with you risks more evenly spread across unique and independent sources of risk/return?
Dave
Statistics: Posted by Random Walker — Fri Dec 27, 2024 2:22 pm — Replies 23 — Views 948