1. A common factor in the cross section of stock returns is a factor that has significant impact for all the firms across time. For example, Fama and French (in a series of academic papers back in the 90s) propose common factors, size and value premium, in addition to market risk premium. What do you think can be a common factor in the cross section of stock returns? Discuss the reason.
2. Read the article below. Study the definition of “factor investing” and “smart beta strategy“. Comment on how do real-time trading frictions (transaction costs, re-balancing costs, etc) affect practitioners when trading on theoretical asset pricing models (factor models, anomalies, etc).
- Make your initial post.
- Reply to at least two other students’ posts.