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I'm reading the paper's summary of:

Beckers, Stan, and Jolly Ann Thomas. "On the persistence of style returns." The Journal of Portfolio Management 37.1 (2010): 15-30.

about how some of these 'Barra style factors' create significant risk premiums, but I don't understand what they are and how a strategy can use them.

The full article is paywalled, but hopefully this gives an idea of the context.

Any hint will be appreciated.

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  • $\begingroup$ Hi @mobius and welcome to quant.SE! can you edit the question adding the reference with a link to the paper, please? $\endgroup$
    – Quantopik
    Jul 7 '15 at 20:50
  • $\begingroup$ @Quantopic, added above $\endgroup$
    – mobius
    Jul 7 '15 at 21:02
  • $\begingroup$ I edited the question adding the complete reference. In such way, if someone have read that, can help you more likely @mobius. $\endgroup$
    – Quantopik
    Jul 7 '15 at 21:10
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Style factors are used to describe the risk or returns of a portfolio or a asset. Style factors describe them in consistent terms that a board of directors or a portfolio manager can understand. You cannot easily do this with eigen values for example.

"... Identify segments of the market  with distinguishable patterns of returns."

The first known style factor was the value factor, described in Ben Ghrams 1934 Securities Analysis.

They are used the same as other factors and this question has been answered before on the site.

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  • $\begingroup$ +1 for Ghrams' factor! I did not know that :) $\endgroup$
    – Quantopik
    Jul 8 '15 at 9:22
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Barra risk factors are particular factors used to implement the Barra risk factor analysis, that consists in a multi-factor model developed by Barra inc. to measure the overall risk to which a financial asset is exposed.

According to investopedia.com:

Barra Risk Factor Analysis incorporates over 40 data metrics including: earnings growth, share turnover and senior debt rating. The model then measures risk factors associated with three main components: industry risk, risk from exposure to different investment themes and company-specific risk.

Finally, Barra risk factors do not differ from common risk factors used by other practioners or academics from a theoretical point of view, but, rather, are a synthesis of them and of the asset risk.

I suggest to read the last release of MSCI/Barra methodology, in which MSCI explains which are the factors used and how they construct them to get a clear idea about such risk factors.

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