Single Multifactor Research Articles

Multifactor Market Indexes

This paper combines the CRSP market index with multiple factors to create a single multifactor market index. Empirical tests of different multifactor market indexes indicate that: (1) Sharpe ratios substantially increase and GRS test statistics decrease as multifactors are incrementally added to the CRSP index; and (2) the resultant multifactor market indexes are significantly priced in cross-sectional tests of associated beta loadings with t-values exceeding 3.0 in most cases.

Practical Applications of Can the Whole Be More Than the Sum of the Parts? Bottom-Up versus Top-Down Multifactor Portfolio Construction

Jenn Bender and Taie Wang of State Street Global Advisors set out to answer a question their clients had been asking: What is the difference between investing in single-factor ETFs versus investing a single multifactor ETF containing the same factors? Bender, who is Managing Director and Director of Research for Global Equity Beta at SSGA, says “It was hard to definitively answer, given that the various single and multifactor portfolios are based on different methodologies.” The authors’ findings show that single-factor portfolio spersistently under perform. Although they expected to see some difference between the strategies, the level of out performance genuinely surprised them. The clue to the disparity is in how factors interact with each other.