Value by Design?
The Journal of Portfolio Management Quantitative Special Issue, 46 (2) 25-43, 2020
Posted: 3 Jun 2020
Date Written: November 14, 2019
Although academics and practitioners frequently refer in their work to equity value investing, no consensus exists as to what this style exactly encompasses. For a wide range of 3,168 alternative implementations (design choices) of what could all constitute value portfolios, the authors document the impact of parameter perturbations on risk-adjusted returns. The observed dispersion in Sharpe ratios allows the authors to identify the hierarchy of design choices and to better assess the degrees of freedom consumed within the strategy development process. The authors can therefore derive critical t-values that adjust for over-fitting. This will prove to be useful in research governance and strategy selection.
Keywords: Style Investing, Statistical Methods, Asset Pricing, Value Factor, Data Snooping, Risk Premia
JEL Classification: C63, G11, G12
Suggested Citation: Suggested Citation