Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
<mark>Journal publication date</mark> | 31/03/2023 |
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<mark>Journal</mark> | Journal of Portfolio Management |
Issue number | 5 |
Volume | 49 |
Number of pages | 21 |
Pages (from-to) | 167-187 |
Publication Status | Published |
<mark>Original language</mark> | English |
Equal-weighted (EW) portfolios have outperformed their value-weighted (VW) counterparts over multiple decades in various investment universes. This article investigates the long-term evidence for the EW–VW return spread in a broad US equity universe across multiple factor models. Unsurprisingly, EW investing comes with a highly significant positive size factor exposure. Given its acyclic rebalancing character, EW investing is also found to benefit from short-term reversal effects while suffering from negative momentum exposure. The authors also document a pronounced seasonality effect in EW investing that would see outsized returns in January. They revisit these findings in the more investable universe of S&P 500 stocks and discuss how to best harvest the embedded factor premiums.