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A Portfolio Perspective on the Multitude of Firm Characteristics

75 Pages Posted: 8 Feb 2017  

Victor DeMiguel

London Business School

Alberto Martin-Utrera

Lancaster University Management School

Francisco J. Nogales

Universidad Carlos III de Madrid - Department of Statistics; Institute of Financial Big Data UC3M-BS

Raman Uppal

EDHEC Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: February 7, 2017

Abstract

We investigate which characteristics matter jointly for an investor who cares not only about average returns but also about portfolio risk, transaction costs, and out-of-sample performance. We find only a small number of characteristics - six - are significant without transaction costs. With transaction costs, the number of significant characteristics increases to 15 because the trades in the underlying stocks required to rebalance different characteristics often net out. We show investors can identify combinations of characteristics with abnormal out-of-sample returns net of transaction costs that are not fully explained by the Fama and French (2015) and Hou, Xue, and Zhang (2014) factors.

Keywords: anomalies, risk, transaction costs, out of sample performance

JEL Classification: G11

Suggested Citation

DeMiguel, Victor and Martin-Utrera, Alberto and Nogales, Francisco J. and Uppal , Raman, A Portfolio Perspective on the Multitude of Firm Characteristics (February 7, 2017). Available at SSRN: https://ssrn.com/abstract=2912819 or http://dx.doi.org/10.2139/ssrn.2912819

Victor DeMiguel

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Alberto Martin-Utrera (Contact Author)

Lancaster University Management School ( email )

Lancaster LA1 4YX
United Kingdom

Francisco Nogales

Universidad Carlos III de Madrid - Department of Statistics ( email )

Avda. de la Universidad, 30
Leganes, Madrid 28911
Spain
+34 916248773 (Phone)

HOME PAGE: http://www.est.uc3m.es/Nogales

Institute of Financial Big Data UC3M-BS ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Raman Uppal

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Centre for Economic Policy Research (CEPR)

90-98 Goswell Road
London, EC1V 7RR
United Kingdom

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