Factor Replication with Industry Stratification
研究了在分层因子复制组合中剔除成本高的小盘股对行业覆盖和跟踪误差的影响，发现行业分层能降低跟踪误差并带来经济收益。
Factor investing exploits asset pricing anomalies to enhance fund returns. Unlike traditional market capitalization indexes, factors have onerous replication costs. We consider the impact of omitting costly, small stocks by industry in stratified factor-replicating portfolios. Such industry stratification achieves broader industry coverage and lowers tracking error compared with competing approaches. We show that the improvement in tracking error is due to enhanced industry coverage, not risk exposure, resulting in substantial economic benefits.