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How do you evaluate this? I have tried searching online but there are no matching results. Is it just a simple average of the 3 Betas? And how do we determine the investment style aggressiveness? In single factor model, β > 1 is used as proxy but this is a multi-factor model. Any help would be appreciated


2 Answers 2


How do the investment styles compare?

KIS 10 is the only one with substantial exposure to Value and Size, the other two have negligible exposure to these two factors. GS1 is typical of a portfolio of big, growing companies, such as S&P 500, market beta near 1 and with very slightly negative value and size exposure. Most investors hold this kind of portfolio, and most mutual funds have this profile. But GS1 is not an S&P 500 Index Fund since such funds target and achieve a market beta of exactly 1. CS7 is slightly more cautious that GS1, probably holds some additional cash.

Which is most aggressive?

Since an "average portfolio" has betas of (1,0,0), I would measure "aggressiveness" as $\beta_1+|\beta_2| +|\beta_3|$. So KIS1 is most aggressive.


This question seems rather vague, but I believe what the question can be answered by identifying the portfolio with the largest difference in the portfolio's excess return and the FF3FM expected return after subtracting the risk free rate.

If, for example, the model prices the portfolio near the portfolio's actual excess return then you know that the portfolio is likely an indexed portfolio. The greater the difference between the model's expected return and the portfolio's actual excess return, the more likely that the portfolio uses some active management that attempts to achieve alpha through security selection--often thought of as a more aggressive style.

Keep in mind, in my above answer, remember to take out the risk free rate from the FF3FM expected return so that you are not inflating the portfolio's actual return.

You will have to retrieve the HML and SMB values from the model creator's website.


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