IDEAS home Printed from https://ideas.repec.org/a/eee/pacfin/v98y2026ics0927538x26001071.html

Scaled factor portfolio

Author

Listed:
  • Jiang, Fuwei
  • Li, Kunpeng
  • Ning, Wei
  • Xue, Hao

Abstract

This study examines a scaled, mean-variance, factor-investing portfolio strategy in a high-dimensional setting. We first scale each factor by its Sharpe ratio and then extract the common principal components (PCs) to construct a factor portfolio. By assigning more weights to factors with higher Sharpe ratios, the scaled PCs incorporate both the second-moment information as in traditional principal component analysis and the first-moment information from the factor set. By shrinking the cross-section of scaled PCs and thereby reducing turnover, the scaled factor portfolio improves the out-of-sample performance in the mean-variance investing problem. The above results are robust across both the U.S. and Chinese stock markets. The scaled factor portfolio also yields a superior estimated pricing kernel for asset pricing.

Suggested Citation

  • Jiang, Fuwei & Li, Kunpeng & Ning, Wei & Xue, Hao, 2026. "Scaled factor portfolio," Pacific-Basin Finance Journal, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:pacfin:v:98:y:2026:i:c:s0927538x26001071
    DOI: 10.1016/j.pacfin.2026.103161
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927538X26001071
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.pacfin.2026.103161?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pacfin:v:98:y:2026:i:c:s0927538x26001071. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/pacfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.