Mathematical Finance & Financial Data Science Seminar
How the Pandemic Taught Us to Turn Smart Beta into Real Alpha
Speaker: Dan diBartolomeo, President, Northfield Information Services, Inc.
Location: Online Zoom access provided to registrants
Date: Tuesday, November 2, 2021, 5:30 p.m.
The ongoing coronavirus pandemic has strongly reminded equity investors that rare but extreme events occur from time to time. These events represent periods of increased volatility and in some cases very negative returns for extended periods. In this presentation we will examine how including the potential for such large events changes traditional views of equity returns and the known factors that contribute to those returns. By incorporating the probability of such rare events in factor models we conclude that strategies that focus on “alpha” (risk adjusted return) as defined in Jensen (1968) are structurally superior to “smart beta” strategies that attempt to outperform an equity index by active exposure to one or more known factors. We illustrate that many popular factor strategies are based on statistically insignificant data.
Dan diBartolomeo is founder and President of Northfield. His record of research publications includes nearly fifty peer-review papers, textbook chapters, and books. He held a visiting professorship at the CARISMA research unit of Brunel University (London) for several years. Dan holds leadership positions with numerous professional societies including CQA and IAQF. In 2019 he became the editor of the Journal of Asset Management.
Dan diBartolomeo Presentation Slides