Factor investing has emerged as the new paradigm for long-term investment. This paper organizes a multi-trial contest opposing factor investing and sector investing. The results suggest
that factor investing is the best strategy when short sales are permitted. When short-selling is forbidden, investors are typically better-off with the defensive opportunities of sector investing.
The contest reveals that there is a trade-off between the risk premia associated with factors and the diversification potential of sectors. Overall, factor investing keeps its promises, but it still has
a long way to go before it can oust sector investing.


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