Reference : Risk optimizations on basis portfolios: The role of sorting
Scientific journals : Article
Business & economic sciences : Finance
http://hdl.handle.net/2268/261043
Risk optimizations on basis portfolios: The role of sorting
English
Fays, Boris mailto [Université de Liège - ULiège > HEC Liège : UER > UER Finance et Droit : Analyse financière et finance d'entr. >]
Papageorgiou, Nicolas [HEC Montréal > > > >]
Lambert, Marie mailto [Université de Liège - ULiège > HEC Liège : UER > UER Finance et Droit : Analyse financière et finance d'entr. >]
Sep-2021
Journal of Empirical Finance
Elsevier
63
136-163
Yes (verified by ORBi)
International
0927-5398
Netherlands
[en] This paper investigates the mean-variance and diversification properties of risk-based strategies ex-ecuted on style or basis portfolios. We show that the performance of these risk strategies is highlysensitive to the sorting procedure used to form the basis assets. Whereas the extant literatureprovides mixed support for the outperformance of smart beta strategies based on scientific diver-sification, our designed strategies outperform both the market model and multifactor model. Ourtesting framework is based on bootstrapped mean-variance spanning tests and shows valid conclu-sions when controlling for multiple testing, transaction costs, and luck from random basis portfolioconstruction rules. Economically, our results are supported by diversification-based properties.
Researchers ; Professionals ; Students
http://hdl.handle.net/2268/261043

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