A Critical Investigation of the Explanatory Role of Factor Mimicking Portfolios

Forskningsoutput: TidskriftsbidragArtikel i vetenskaplig tidskrift

Abstract

The common approach for constructing factor mimicking portfolios is to go long in assets with high loadings and to short-sell those with low loadings on some background factors. As a result portfolios containing stocks with low loading on the background factor receive negative betas against the corresponding mimicking portfolio. Thus, such portfolios appear as hedges against the background risk and may in tests of asset pricing models receive significant positive intercepts. The final result regarding acceptance or rejection of an asset pricing model may therefore to some extent be understood as a random outcome.

Detaljer

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Enheter & grupper
Forskningsområden

Ämnesklassifikation (UKÄ) – OBLIGATORISK

  • Nationalekonomi
Originalspråkengelska
Sidor (från-till)835-47
TidskriftApplied Financial Economics
Volym15
Utgåva nummer12
StatusPublished - 2005
PublikationskategoriForskning
Peer review utfördJa