Constructing Common-Factor Portfolios
AbstractIn this paper we construct common-factor portfolios using a novel linear transformation of standardfactor models extracted from large data sets of asset returns. The simple transformation proposed herekeeps the basic properties of the usual factor transformations, although some new interesting propertiesare further attached to them. Some theoretical advantages are shown to be present. Also, their practicalimportance is confi rmed in two applications: the performance of common-factor portfolios are shown tobe superior to that of asset returns and factors commonly employed in the finance literature.
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Bibliographic InfoPaper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 731.
Date of creation: 19 Apr 2012
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-02 (All new papers)
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