Constructing Common-Factor Portfolios

AUTOR(ES)

Carrasco-Gutierrez, Carlos Enrique

FONTE

Escola de Pós-Graduação em Economia da FGV

DATA DE PUBLICAÇÃO

19/04/2012

RESUMO

In this paper we construct common-factor portfolios using a novel linear transformation of standard factor models extracted from large data sets of asset returns. The simple transformation proposed here keeps the basic properties of the usual factor transformations, although some new interesting properties are further attached to them. Some theoretical advantages are shown to be present. Also, their practical importance is confi rmed in two applications: the performance of common-factor portfolios are shown to be superior to that of asset returns and factors commonly employed in the finance literature.

ASSUNTO(S)

common factors common features consumption capital asset pricing model stochastic discount factor linear multifactor model

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