1. John Cochrane of the University of Chicago coined the term “zoo of factors” in his 2011 presidential address to the American Finance Association.
2. We use risk factor to mean factors whose premia are compensation for risk and behavioral factors to mean factors whose premia are excess returns from exploiting behavioral mistakes. We use return factor to mean factors which may be behavioral or risk in nature. The literature remains divided on whether factors like value and momentum are driven by risk or behavioral biases.
3. Harvey, Liu, and Zhu (2014) reported that 59 new factors were discovered between 2010 and 2012.
4. The phrase “data snooping” was coined by Lo and MacKinley (1990).
5. We have argued elsewhere that quality is not a factor in itself. On the other hand a value investor can benefit from knowing the financial and economic health of a company. See “The Moneyball of Quality Investing,” Research Affiliates, June 2014.
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