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Measuring the relative return contribution of risk factors

Author

Listed:
  • Johan Knif

    (Hanken School of Economics)

  • James W. Kolari

    (Texas A&M University)

  • Gregory Koutmos

    (Fairfield University)

  • Seppo Pynnönen

    (University of Vaasa)

Abstract

This paper proposes a simple method to measure and compare the average relative return contribution of proposed risk factors. The method is applied to six common risk factors, including market, size, value, momentum, profitability, and investment, using 49 U.S. industry portfolios in the period 1969–2014. We find that the average relative return contributions of the market factor and mispricing alpha are highest in all models and sample periods. When multifactors are included, their main effect is to reduce the contribution of the average market factor return with some reduction in the contribution of mispricing alpha.

Suggested Citation

  • Johan Knif & James W. Kolari & Gregory Koutmos & Seppo Pynnönen, 2019. "Measuring the relative return contribution of risk factors," Journal of Asset Management, Palgrave Macmillan, vol. 20(4), pages 263-272, July.
    • Handle: RePEc:pal:assmgt:v:20:y:2019:i:4:d:10.1057_s41260-019-00121-9
    DOI: 10.1057/s41260-019-00121-9
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    References listed on IDEAS

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    2. Arkadiusz Górski & Kamila Urbańska & Agnieszka Parkitna, 2020. "Identification of risks of investments into residential premises for rent in Poland," WORking papers in Management Science (WORMS) WORMS/20/15, Department of Operations Research and Business Intelligence, Wroclaw University of Science and Technology.

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