A Critical Investigation of the Explanatory Role of Factor Mimicking Portfolios
Author
Summary, in English
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.
Department/s
Publishing year
2005
Language
English
Pages
47-835
Publication/Series
Applied Financial Economics
Volume
15
Issue
12
Document type
Journal article
Publisher
Taylor & Francis
Topic
- Economics
Status
Published
ISBN/ISSN/Other
- ISSN: 0960-3107