The Explanatory Role of Factor Portfolios for Industries Exposed to Foreign Competition

Research output: Contribution to journalArticle

Abstract

Our purpose is to find factors that are important for expected returns and risk of Swedish industrial portfolios during 1980–1997. The tested factors are supposed to be essential for a small open economy. We take into account the small sample problem that surfaces in the form of firms dominating the value weighted test portfolios. An extreme bound analysis (EBA) investigates the robustness of the estimated parameters. Principal component analysis is used to assess the importance of the factors in explaining return covariances. Our overall conclusion is that the market portfolio, which refers to the world as well as the Swedish market portfolio, is almost sufficient for explaining expected returns and risk.

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Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics

Keywords

  • Small sample problem, Open economy, Multifactor asset pricing models
Original languageEnglish
Pages (from-to)325-53
JournalJournal of International Financial Markets, Institutions, and Money
Volume13
Issue number4
Publication statusPublished - 2003
Publication categoryResearch
Peer-reviewedYes