Arrow_Blue_Orange.pngWhat Is a Factor?

Part 2: The Impact of the Long-Only Constraint


In this paper we extend our analysis of how the construction of a factor portfolio, even using the same underlying factor definition, can have substantial impact on the returns the factor generates. The current paper digs deeper into the impact of a long-only constraint, and describes the characteristics of these portfolios as well as the associated performance. One main goal is to describe how a traditional factor-mimicking portfolio might misstate the returns a long-only manager can achieve.



Authors:

 
Melissa R. Brown, CFA 
Managing Director, Applied Research

Esther Mezey, PhD
Research Director


melissacircle.png

Ipek Onat, MSc
Product Specialist Manager


Dieter Vandenbussche, PhD
Managing Director, Equity Research

Arrow_Blue_Orange.pngWhat Is a Factor?



In this paper we extend our analysis of how the construction of a factor portfolio, even using the same underlying factor definition, can have substantial impact on the returns the factor generates. The current paper digs deeper into the impact of a long-only constraint, and describes the characteristics of these portfolios as well as the associated performance. One main goal is to describe how a traditional factor-mimicking portfolio might misstate the returns a long-only manager can achieve.
WHITEPAPER


Author: 
Melissa R. Brown, CFA
Managing Director, Applied Research

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