Scientific Beta

Private Wealth Canada: "There is a contradiction between score-based factor design choices and the statistical beta-based risk analysis, says a survey by the EDHEC-Risk Institute and ERI Scientific Beta. It says analysis of the extreme risk of factor portfolios is still fairly basic and does not really allow the extreme risks to be appreciated. The survey shows multi-factor strategies tend to be implemented in a passive investment context. Even when dynamic, factor investing is generally based on risk budget management rather than active views of returns. And, in spite of its limitations, the score-based approach dominates."

Private Wealth Canada 05/02/2018

"(...) There is a contradiction between score-based factor design choices and the statistical beta-based risk analysis, says a survey by the EDHEC-Risk Institute and ERI Scientific Beta. It says analysis of the extreme risk of factor portfolios is still fairly basic and does not really allow the extreme risks to be appreciated. The survey shows multi-factor strategies tend to be implemented in a passive investment context. Even when dynamic, factor investing is generally based on risk budget management rather than active views of returns. And, in spite of its limitations, the score-based approach dominates. Even though factor investing was founded on analyses in terms of betas, the measurement of betas is still in a minority and is rudimentary. As well, although valuation-based methods have been widely criticized in academia both for the value bias introduced and for their effectiveness and methods based on momentum are often highly sample-dependent and criticized for their arbitrary aspect, investors still favour these two approaches. (...)"