“Dimensional Fund Advisors, 2002”
Instruction
The non-presenting groups should submit a printed copy of case report that answers the questions listed below. Those questions are not meant to be exhaustive. So feel free to discuss other things you deem important. You are encouraged to collect facts and/or data to support your arguments.
1. What are the philosophical beliefs of Dimensional Fund Advisors (DFA)? What products does DFA offer? How does DFA add value for its investors?
2. How is DFA’s business related to the research of Fama and French? Why do you think small stocks outperformed big stocks historically? That is, do the better returns of small stocks reflect the compensation for extra risk or the correction in mispricing? In other words, do you think small stocks are riskier than big stocks? Or small stocks are undervalued relative to big stocks and such mispricing is corrected later on? Do you expect this pattern to continue in the future?
3. Similarly, why do you think value stocks outperformed growth stocks historically? That is, do the better returns of value stocks reflect risk compensation or corrected mispricing? Do you expect this patterns to continue in the future?
4. Why does DFA care so much about trading? What rules does it adopt for its trading practice? Do you think DFA can keep its competitive advantage in trading in the future?
5. How does DFA’s new tax-management business work? What are the costs and benefits? Is the tax-managed fund business likely to be successful on a broad scale?
6. How should DFA form its strategy going forward? To continue its success, do you think DFA should make changes? If so, can you suggest any directions? If not, why?
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