A portfolio perspective on the multitude of firm characteristics

Management Science and Operations

Social Sciences Research Network

DeMiquel V;Martin-Utrera A;Nogales FJ;Uppal R

Victor DeMiguel

2017

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.

Anomalies; Risk; Transaction costs; Out of sample performance

Social Sciences Research Network

No

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