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Home | Events Archive | The Smart Beta Mirage

The Smart Beta Mirage

  • Series
  • Speaker(s)
    Shiyang Huang (HKU, Hong Kong)
  • Field
    Finance, Finance
  • Location
  • Date and time

    November 17, 2020
    10:00 - 11:15

Abstract: We document and explain sharp performance deterioration of smart beta indexes after the corresponding smart beta ETFs are listed for investments. While smart beta claims to provide excess returns through factor exposures, adjusted by the aggregate market return, the return of smart beta indexes drops from 2.77% per year “on paper” before ETF listing to −0.44% per year after ETF listing. This performance deterio- ration cannot be explained by strategic timing in ETF listing nor explained by time trend in factor premia. In contrast, we find strong evidence of data mining in construct- ing smart beta indexes as the post-ETF-listing performance decline is much sharper for indexes that are more susceptible to data mining in backtests. Our results caution against the risk of data mining in the proliferation of ETF offerings as investors respond strongly to the stellar performance in backtests.

Link to the seminar:

Meeting ID: 430 321 2462

Passcode: please send an email to: stolting@ese.eur.nl for the passcode.

Some information and suggestions:

  • To improve the seminar atmosphere, we strongly encourage you to switch on your webcam.
  • Your microphone will be on mute upon joining the meeting, please leave it like that and unmute it only if you want to ask a question.
  • Asking questions: please go ahead and ask questions in the “usual way” (i.e., don’t use the chat unless you want to notify me/host of any problem related to the seminar).