Abstract

http://ssrn.com/abstract=1327004
 
 

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Optimized vs. Sort-Based Portfolios


Gerard Hoberg


University of Southern California - FBE Dept

Ivo Welch


University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

December 10, 2009

AFA 2010 Atlanta Meetings Paper

Abstract:     
Factors and test portfolios can be formed by optimizing objective functions instead of by sorting. Optimizing is more parsimonious and flexible, and the portfolio returns can be easier to find. Our approach effectively marries some advantages of the Fama and MacBeth (1973) cross-sectional approach with those of the time-series approach in Black, Jensen, and Scholes (1971). Our paper shows that optimized portfolios can make a difference: they reverse the inference in Daniel and Titman (1997) and Davis, Fama, and French (2000).

Number of Pages in PDF File: 45

Keywords: book-to-market, HML, characteristics, factors

JEL Classification: G1

working papers series





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Date posted: January 14, 2009 ; Last revised: December 28, 2009

Suggested Citation

Hoberg, Gerard and Welch, Ivo, Optimized vs. Sort-Based Portfolios (December 10, 2009). AFA 2010 Atlanta Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1327004 or http://dx.doi.org/10.2139/ssrn.1327004

Contact Information

Gerard Hoberg
University of Southern California - FBE Dept ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
HOME PAGE: http://www-bcf.usc.edu/~hoberg/
Ivo Welch (Contact Author)
University of California, Los Angeles (UCLA) ( email )
405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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