A New Method for Factor-Mimicking Portfolio Construction
79 Pages Posted: 18 Mar 2019 Last revised: 14 Apr 2022
Date Written: February 20, 2019
Abstract
We propose a novel method to construct factor-mimicking portfolios and apply the method for estimating the risk premiums of nontradable factors. Several macroeconomic factors are related to the cross-sectional covariance of individual stock or corporate bond returns. Consumption growth, inflation, and unemployment command equity premiums; consumption growth and industrial production command corporate bond premiums.
Keywords: factor-mimicking portfolios, nontraded factors, risk premium
JEL Classification: G10, G12, G11
Suggested Citation: Suggested Citation
Pukthuanthong, Kuntara and Roll, Richard W. and Wang, Junbo L. and Zhang, Tengfei, A New Method for Factor-Mimicking Portfolio Construction (February 20, 2019). Available at SSRN: https://ssrn.com/abstract=3341604 or http://dx.doi.org/10.2139/ssrn.3341604
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