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Do Smart Beta ETFs Capture Factor Premiums? A Bayesian Perspective

Author

Listed:
  • Alexandre Rubesam

    (IESEG School of Management (LEM-CNRS-UMR 9221))

  • Soosung Hwang

    (College of Economics, Sungkyunkwan University, Seoul, Korea)

Abstract

We investigate which factors matter to explain the returns of smart beta and conventional ETFs using a Bayesian approach. Smart beta ETFs are well explained by the market, size and the betting-against-beta factor, whereas conventional ETFs are well explained by the market, the quality-minus-junk factor, and a value factor. Smart beta ETFs benefit from their exposure to the betting against beta factor, however this is o↵set by their negative alphas, while the factor exposure of conventional ETFs is purely detrimental. Our results suggest investors should be skeptical about the ability of smart beta ETFs to capture factor premiums.

Suggested Citation

  • Alexandre Rubesam & Soosung Hwang, 2018. "Do Smart Beta ETFs Capture Factor Premiums? A Bayesian Perspective," Working Papers 2018-ACF-04, IESEG School of Management.
    • Handle: RePEc:ies:wpaper:f201804
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