Measuring Portfolio Factor Exposures: A Practical Guide

Why Should Investors Care About Factor Exposures?

Investors have become increasingly focused on how to harvest returns in an efficient way. A big part of that process involves understanding the sources of risk and reward in their portfolios. “Risk-based in-vesting” generally views a portfolio as a collection of return-generating processes or risk factors. The most prevalent and widely harvested of these factors is the equity market (equity risk premium); but there are also others, such as value and momentum (often referred to as “style premia”).

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