Arbitrage Portfolios

• 成果类型: Article
• 署名作者: Kim, Soohun; Korajczyk, Robert A.; Neuhierl, Andreas
• 署名单位: Korea Advanced Institute of Science & Technology (KAIST); Northwestern University; Washington University (WUSTL)
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhaa102
• 发表日期: 2021
• 页码: 2813
• 关键词: cross-section; RISK; returns; number; INFORMATION; prices

摘要

We propose a new methodology for forming arbitrage portfolios that utilizes the information contained in firm characteristics for both abnormal returns and factor loadings. The methodology gives maximal weight to risk-based interpretations of characteristics' predictive power before any attribution is made to abnormal returns. We apply the methodology to simulated economies and to a large panel of U.S. stock returns. The methodology works well in our simulation and when applied to stocks. Empirically, we find the arbitrage portfolio has (statistically and economically) significant alphas relative to several popular asset pricing models and annualized Sharpe ratios ranging from 1.31 to 1.66.