Risk Premia in the Portfolio Context
Several risk factors influence the risk-return profiles of financial assets and portfolios. Smart beta strategies apply this concept and have attracted considerable attention in recent years. Such strategies often use aggregated measures such as portfolios or indices to estimate world-, regional-, and country-specific risk factors. But not all factor exposures compensate through higher returns all the time. Risk premiums are time varying because of economic cycles and changing market integration. In global asset allocation, it is vital to consider such aspects and to extract information from a large number of individual stocks instead of from portfolios or indices, as this enables one to target diversification benefits in particular in emerging markets.