Abstract

http://ssrn.com/abstract=1802591
 
 

References (34)



 


 



The Sources of Portfolio Returns: Underlying Stock Returns and the Excess Growth Rate


Jason T. Greene


Southern Illinois University

David A. Rakowski


University of Texas at Arlington; Southern Illinois University - Department of Finance

August 22, 2011


Abstract:     
This paper decomposes portfolio returns into the underlying sources arising from the constituent stocks’ growth rates, as well as their variances and covariances. We employ this method to show that the difference between large and small stock portfolio returns is driven by a portfolio “excess growth rate” that is induced by the higher volatility of small stocks’ returns and not by the average growth rate of small stocks. Therefore, the “size effect” is not a small firm effect, but a small firm portfolio effect driven by the excess growth rate of the portfolios. In contrast, portfolios of high book-to-market stocks outperform due to higher average levels of growth by the constituent stocks and not due to their variance-covariance structure. Our results demonstrate the importance of considering the sources of portfolio performance as possibly distinct from the performance of the portfolio’s underlying stocks when designing and interpreting studies of portfolio performance, corporate events, or the cross-section of stock returns.

Number of Pages in PDF File: 42

Keywords: Portfolio Returns, Portfolio Growth Rates, Size Effect, Long-Term Stock Returns

JEL Classification: G11, G12, G14

working papers series





Download This Paper

Date posted: April 5, 2011 ; Last revised: August 25, 2011

Suggested Citation

Greene, Jason T. and Rakowski, David A., The Sources of Portfolio Returns: Underlying Stock Returns and the Excess Growth Rate (August 22, 2011). Available at SSRN: http://ssrn.com/abstract=1802591 or http://dx.doi.org/10.2139/ssrn.1802591

Contact Information

Jason T. Greene (Contact Author)
Southern Illinois University ( email )
Mail Code 4626
Carbondale, IL 62901-4626
United States
618-453-1421 (Phone)
David A. Rakowski
University of Texas at Arlington ( email )
Box 19449 UTA
Arlington, TX 76019
United States
Southern Illinois University - Department of Finance ( email )
Mailcode 4626
Carbondale, IL 62901
United States
618-453-1425 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 1,293
Downloads: 216
Download Rank: 83,743
References:  34

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.282 seconds