Robeco examines whether equity factor investing really needs short positions, breaking down factor returns into long and short components across decades of data. The findings challenge a core assumption in quant investing, suggesting most of the value comes from the long side, with shorts contributing little and sometimes detracting from performance.
When Equity Factors Drop Their Shorts
Robeco
David Blitz
Research
30 Pages
Key Takeaways
Long Leg Dominance: Long-only factor portfolios delivered higher Sharpe ratios than long short versions across 1963–2018, with statistically significant positive alpha concentrated entirely in the long leg.
Short Leg Weak Alpha: Short legs showed zero to negative alpha after controlling for longs, with typical short-side trading volume only 24%–31% of stocks, highlighting weaker and less reliable return contribution.
Diversification Advantage Longs: Correlation across long legs was մոտ 0 while short legs were positively correlated, improving multi-factor diversification and boosting combined portfolio efficiency by measurable Sharpe ratio gains.
Join our newsletter to have all of this content + Exclusive Newsletter Bonus Content delivered to your inbox every week
Related Content
