Firm Characteristics, Covariances, and Cross-sectional Expected Returns
Author | : Pengqin Gao |
Publisher | : |
Total Pages | : 159 |
Release | : 2010 |
ISBN-10 | : 1124048618 |
ISBN-13 | : 9781124048611 |
Rating | : 4/5 (611 Downloads) |
Download or read book Firm Characteristics, Covariances, and Cross-sectional Expected Returns written by Pengqin Gao and published by . This book was released on 2010 with total page 159 pages. Available in PDF, EPUB and Kindle. Book excerpt: I investigate the relationship among firm characteristics, conditional covariance structure of stock returns, and cross-sectional expected returns. In the first chapter of my dissertation, I explore the (abnormal) return covariance pattern of S & P 500 stocks. Their covariance pattern, without being associated with any common factors, is explicitly linked to firm characteristics such as size, momentum, and accounting-based fundamentals. I propose a new covariance estimator based on this observation. In comparison to factor-based covariance models, a characteristic-based covariance model brings substantial diversification benefits and utility gains for a risk-averse investor seeking a global minimum variance portfolio and an optimal tangency portfolio, respectively.