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Factor risk premiums and invested capital: calculations with stochastic discount factors

Author

Listed:
  • Andrew Ang

    (BlackRock Inc.)

  • Ked Hogan

    (BlackRock Inc.)

  • Sara Shores

    (BlackRock Inc.)

Abstract

Factor portfolios with value, size, momentum, profitability, and low volatility stocks have historically exhibited high returns after adjusting for market risk. As the weights of these portfolios increase in the stochastic discount factor, the excess returns of these factor strategies should decrease. We compare weights of these factor portfolios in the efficient set relative to which there are no factor risk premiums with market capitalization weights.

Suggested Citation

  • Andrew Ang & Ked Hogan & Sara Shores, 2018. "Factor risk premiums and invested capital: calculations with stochastic discount factors," Journal of Asset Management, Palgrave Macmillan, vol. 19(3), pages 145-155, May.
    • Handle: RePEc:pal:assmgt:v:19:y:2018:i:3:d:10.1057_s41260-017-0069-0
    DOI: 10.1057/s41260-017-0069-0
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    References listed on IDEAS

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