A New Method for Factor-Mimicking Portfolio Construction

79 Pages Posted: 18 Mar 2019 Last revised: 14 Apr 2022

See all articles by Kuntara Pukthuanthong

Kuntara Pukthuanthong

University of Missouri, Columbia

Richard Roll

California Institute of Technology

Junbo L. Wang

Louisiana State University, Baton Rouge

Tengfei Zhang

Rutgers University - Rutgers School of Business-Camden

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

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

Kuntara Pukthuanthong

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: https://www.kuntara.net/

Richard W. Roll

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)

Junbo L. Wang

Louisiana State University, Baton Rouge ( email )

Baton Rouge, LA 70803
United States

Tengfei Zhang (Contact Author)

Rutgers University - Rutgers School of Business-Camden ( email )

227 Penn Street
Camden, NJ 08102
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,566
Abstract Views
5,659
Rank
21,826
PlumX Metrics