PT  - JOURNAL ARTICLE
AU  - Lars Kaiser
AU  - Georg Peter
TI  - Riding the 1/N Premium
AID  - 10.3905/joi.2021.1.201
DP  - 2022 Jan 31
TA  - The Journal of Investing
PG  - 94--109
VI  - 31
IP  - 2
4099  - https://pm-research.com/content/31/2/94.short
4100  - https://pm-research.com/content/31/2/94.full
AB  - This article proposes a simple and effective rotation strategy. The strategy rotates between the value-weighted market portfolio (VW) and the equal-weighted counterpart (EW) based on an implicit market signal—the lagged one-month market return. The authors report a statistically significant relation between the lagged one-month market return and the future 1/N premium, which is the return difference between the EW and VW portfolios. Building on the predictive quality and exploiting the time-varying nature of the 1/N premium, they introduce a transparent and robust investment strategy that yields superior absolute and risk-adjusted returns.