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Positive Portfolio Factors

19 Pages Posted: 20 Sep 2000  

Stephen J. Brown

New York University - Stern School of Business

William N. Goetzmann

Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area; Yale University - International Center for Finance; National Bureau of Economic Research (NBER)

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Date Written: February 1998

Abstract

We use an iterative relocation algorithm to identify factors in common stock returns. The benefit of the approach is that factors are portfolios of assets with non-negative weights. As a result, they are readily interpreted in terms of their characteristics of the underlying securities. The positive portfolio factors have comparatively high explanatory power in sample and out-of-sample. We find evidence of a size factor and factors identified with certain industries. Factors extracted from the mutual fund universe perform marginally better than factors from the universe of equities.

Suggested Citation

Brown, Stephen J. and Goetzmann, William N. and Grinblatt, Mark, Positive Portfolio Factors (February 1998). NBER Working Paper No. w6412. Available at SSRN: https://ssrn.com/abstract=226160

Stephen Brown (Contact Author)

New York University - Stern School of Business ( email )

Stern School of Business
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William Goetzmann

Yale School of Management - International Center for Finance ( email )

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Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-1098 (Phone)
310-206-5455 (Fax)

Yale University - International Center for Finance

Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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