Factor Investing: Value, Momentum, Quality and the Evidence
Learn what equity factors are, how value, momentum, quality, size and low volatility are defined and tested, and how to judge whether a factor product gives you the exposure it promises.
Self-study course Self-study course: written lessons, videos and downloadable materials for independent learning. There is no supervision, assessment, individual feedback or tutoring. Self-check quizzes are evaluated automatically in your browser — we do not see your results.
All 12 lessons free
Before you start
- Comfortable reading financial statements and valuation multiples (as in the Stocks & Fundamental Analysis course)
- Basic knowledge of ETFs, index construction and costs (as in the ETFs, Funds & Long-Term Investing course)
- Willingness to work through simple percentage and ranking calculations on paper
What you will be able to do
- Explain the difference between a long-short academic factor and a long-only factor product
- Define value, momentum, quality, size and low volatility with concrete formulas and rank stocks by each
- Calculate a 12-minus-1 momentum signal, an accruals ratio and a two-asset minimum-variance weight
- Describe the main historical drawdowns of value and momentum and what caused them
- Judge which factor combinations have historical support and which are mostly marketing
- Estimate implementation costs such as turnover, spreads and borrowing fees for a factor strategy
Lessons in this course
What a Factor Is: Risk Premia, Anomalies and Long-Short versus Long-Only
Understand what an equity factor is, how the Fama–French evidence was built, and why a long-only factor ETF captures only part of an academic long-short factor return.
The Value Factor: Price-to-Book versus Composites, the 2007–2020 Drawdown and Value Traps
Define value with single and composite measures, understand why book value has become a weaker signal, and separate the value premium from individual value traps.
Momentum: The 12-minus-1 Signal, the 2009 Crash and the Cost of Turnover
Build the standard 12-minus-1 momentum signal, understand why momentum portfolios crash when markets rebound, and estimate what turnover costs a momentum strategy.
Quality and Profitability: Return on Equity, Accruals, Leverage and the Pairing with Value
Define the quality factor with concrete profitability, accruals and leverage measures, build a simple quality score, and see why quality and value complement each other.
Size and the Small-Cap Premium: The Evidence after Removing Junk and the Case for Small-Cap Value
Review what the size evidence really shows, why the premium strengthens once low-quality companies are controlled for, and why small-cap value has a stronger record than small caps in general.
Low Volatility and Minimum Variance: Construction, Interest-Rate Sensitivity and the Lottery Explanation
Build a simple minimum-variance portfolio, understand why low-volatility strategies react to interest rates, and learn the lottery-preference and leverage-constraint explanations for the anomaly.
How factor ETFs are built: MSCI and S&P methodologies, screening versus tilting and factor purity
Read a factor index methodology, tell a screened index from a tilted one, and measure how much factor exposure a product really delivers.
Multi-factor portfolios: mixing versus integrating, factor correlations and the evidence on factor timing
Compare a mix of single-factor funds with an integrated multi-factor index, use factor correlations to estimate combined tracking error, and judge factor-timing claims.
Measuring the factor exposure of your own portfolio: a simple regression, factor loadings and tracking error
Run a returns-based regression on your own portfolio, read factor loadings and R-squared, and translate residual risk into an annual tracking error against the market.
Costs, capacity and crowding: turnover, implementation shortfall and factor decay after publication
Estimate the trading-cost drag of a factor strategy from turnover and spreads, judge a fund's capacity from trading volume, and apply the published evidence on post-publication decay.
Why premia may persist or vanish: risk-based and behavioural explanations and tracking-error regret
Distinguish risk-based from behavioural explanations of factor premia, calculate how often a tilt underperforms over different horizons, and understand why regret drives investors out.
A written factor-tilt policy: allocation, underperformance tolerance in years and review rules
Write a one-page factor-tilt policy with sizes in euros, a pre-committed tolerance for underperformance in years and percentage points, and objective review triggers.
Portfolio Construction in Depth: Risk Budgets, Regimes and Stress Tests
Continue with Portfolio Construction in Depth: Risk Budgets, Regimes and Stress Tests to learn how a factor tilt fits into a full risk budget.
View course outline