Optimal characteristic portfolios

McGee, Richard J. ; Olmo, José

Resumen: Characteristic-sorted portfolios are the workhorses of modern empirical finance, deployed widely to evaluate anomalies and construct asset pricing models. We propose a new method for their estimation that is simple to compute, makes no ex-ante assumption on the nature of the relationship between the characteristic and returns, and does not require ad hoc selections of percentile breakpoints or portfolio weighting schemes. Characteristic portfolio weights are implied directly from data, through maximizing a Mean–Variance objective function with mean and variance estimated non-parametrically from the cross-section of assets. To illustrate the method, we evaluate the size, value and momentum anomalies and find overwhelming empirical evidence of the outperformance of our methodology compared to standard methods for constructing characteristic-sorted portfolios.

Idioma: Inglés

DOI: 10.1080/14697688.2022.2094282

Año: 2022

Publicado en: Quantitative Finance 22, 10 (2022), 1853-1870
ISSN: 1469-7688

Factor impacto JCR: 1.3 (2022)

Categ. JCR: ECONOMICS rank: 271 / 380 = 0.713 (2022) - Q3 - T3
Categ. JCR: SOCIAL SCIENCES, MATHEMATICAL METHODS rank: 37 / 53 = 0.698 (2022) - Q3 - T3
Categ. JCR: MATHEMATICS, INTERDISCIPLINARY APPLICATIONS rank: 81 / 107 = 0.757 (2022) - Q4 - T3
Categ. JCR: BUSINESS, FINANCE rank: 91 / 111 = 0.82 (2022) - Q4 - T3

Factor impacto CITESCORE: 3.6 - Economics, Econometrics and Finance (Q2)

Factor impacto SCIMAGO: 0.715 - Economics, Econometrics and Finance (miscellaneous) (Q1) - Finance (Q2)

Financiación: info:eu-repo/grantAgreement/ES/MICINN/PID2019-104326GB-I00

Tipo y forma: Article (Published version)

Área (Departamento): Área Economía Finan. y Contab. (Dpto. Contabilidad y Finanzas)