Are Factor ETFs a Valuable Investment?
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- Master of Science 
In this thesis, we study the performance of factor ETFs. We estimate risk-adjusted returns (alpha) using renowned asset pricing models to capture different sources of systematic risk. Moreover, we study whether factor ETFs add value to different types of investors using different performance metrics. In addition, we study how style characteristics of factor ETFs can be exploited to diversify investors’ portfolios and improve their risk-return tradeoff. We find that, on average, factor ETFs do not generate significant risk-adjusted returns. Furthermore, we find that most funds do not add value to different types of investors, apart from growth and momentum factor ETFs. We conclude that the average investor obtains a better risk-return tradeoff by holding the market portfolio. However, certain factors like growth and momentum can be exploited to improve the overall risk-adjusted performance.
Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2022