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Tradable Risk Factors for Institutional and Retail Investors

Johansson, Andreas LU ; Sabbatucci, Riccardo and Tamoni, Andrea (2025) In Review of Finance 29(1). p.103-139
Abstract
We construct tradable risk factors using combinations of large and liquid mutual funds (long leg) and ETFs (exchange-traded funds) (long and short legs), based on their holdings, for both retail and institutional investors. Exploiting a novel dataset, our tradable factors take into account ETF shorting costs. Assessing the performance of our tradable factors against standard “on-paper” factors, we uncover an implementation shortfall of 2–4 percent annually. Shorting fees and transaction costs contribute to 58 percent of the performance differential between tradable and “on-paper” factors, assigning a non-trivial role to the opportunity cost of not trading the exact “on-paper” portfolio.
Abstract (Swedish)
We construct tradable risk factors using combinations of large and liquid mutual funds (long leg) and ETFs (exchange-traded funds) (long and short legs), based on their holdings, for both retail and institutional investors. Exploiting a novel dataset, our tradable factors take into account ETF shorting costs. Assessing the performance of our tradable factors against standard “on-paper” factors, we uncover an implementation shortfall of 2–4 percent annually. Shorting fees and transaction costs contribute to 58 percent of the performance differential between tradable and “on-paper” factors, assigning a non-trivial role to the opportunity cost of not trading the exact “on-paper” portfolio.
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author
; and
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
Review of Finance
volume
29
issue
1
pages
103 - 139
publisher
Oxford University Press
external identifiers
  • scopus:85215830247
ISSN
1572-3097
DOI
10.1093/rof/rfae034
language
English
LU publication?
yes
id
771a1479-5882-45cc-a999-74164932ba92
date added to LUP
2024-11-22 12:51:19
date last changed
2025-04-04 13:55:52
@article{771a1479-5882-45cc-a999-74164932ba92,
  abstract     = {{We construct tradable risk factors using combinations of large and liquid mutual funds (long leg) and ETFs (exchange-traded funds) (long and short legs), based on their holdings, for both retail and institutional investors. Exploiting a novel dataset, our tradable factors take into account ETF shorting costs. Assessing the performance of our tradable factors against standard “on-paper” factors, we uncover an implementation shortfall of 2–4 percent annually. Shorting fees and transaction costs contribute to 58 percent of the performance differential between tradable and “on-paper” factors, assigning a non-trivial role to the opportunity cost of not trading the exact “on-paper” portfolio.<br/>}},
  author       = {{Johansson, Andreas and Sabbatucci, Riccardo and Tamoni, Andrea}},
  issn         = {{1572-3097}},
  language     = {{eng}},
  number       = {{1}},
  pages        = {{103--139}},
  publisher    = {{Oxford University Press}},
  series       = {{Review of Finance}},
  title        = {{Tradable Risk Factors for Institutional and Retail Investors}},
  url          = {{http://dx.doi.org/10.1093/rof/rfae034}},
  doi          = {{10.1093/rof/rfae034}},
  volume       = {{29}},
  year         = {{2025}},
}