Scientific Beta

Financial Investigator: "With the Volkswagen scandal, the EDHEC Risk Institute and ERI Scientific Beta research teams wish to stress that the robustness of multi-factor indices depends on both the balance of factor exposures and good diversification of specific risks. It is only on this double condition that an index can be qualified as smart."

Financial Investigator 04/11/2015

"(...) In 2014, EDHEC Risk Institute researchers had shown in an article published in the Journal of Portfolio Management (Amenc, N., F. Goltz, A. Lodh and L. Martellini, Summer 2014, Towards Smart Equity Factor Indices: Harvesting Risk Premia without Taking Unrewarded Risks, Vol. 40, No. 4) that over the long term good diversification of the specific risk of factor indices led to much better risk-adjusted performance than the traditional approaches to constructing these indices. In a new EDHEC Risk Institute working paper entitled “The Limitations of Factor Investing: Impact of the Volkswagen Scandal on Concentrated versus Diversified Factor Indices,” Noël Amenc, Professor of Finance, EDHEC Risk Institute and CEO, ERI Scientific Beta, and his co-authors Sivagaminathan Sivasubramanian, Quantitative Analyst, ERI Scientific Beta, and Jakub Ulahel, Quantitative Research Analyst, ERI Scientific Beta, have shown that in the short term this good diversification enabled one to cope with the consequences of risks that affected a stock or a sector of activity. (...) With the Volkswagen scandal, the EDHEC Risk Institute and ERI Scientific Beta research teams wish to stress that the robustness of multi-factor indices depends on both the balance of factor exposures and good diversification of specific risks. It is only on this double condition that an index can be qualified as smart. (...)"