RISK PREMIA INVESTING –
FROM THE TRADITIONAL TO ALTERNATIVES
Alternative risk premia have become a popular area of focus in the investment world. Academic literature has been supplemented with product launches from the asset management community and new solutions from investment banks (some of these are marketed as “smart beta” strategies). Recent surveys of large institutional investors illustrate an attraction to this type of framework, with indications that large endowments and pension plan investors are increasingly focusing on factor analysis and specifically risk premia when constructing their broader investment portfolios.
In this paper we provide an overview of the risk premia concept and focus on a set of liquid “alternative” (or non-traditional) risk premia in particular. We cover the following topics.