Description

Victor DeMiguel (London Business School) will present on 'Fifty Ways to Beat the Market: A Portfolio Perspective on Investment Anomalies' (joint work with Alberto Martín-Utrera, Francisco J. Nogales and Raman Uppal).

One-to-one meetings: If anyone would like to meet with Miguel Delgado before the seminar on Friday please follow the link below:
(all one-to-one meetings will take place in the JCR). The seminar starts at 4.30pm and runs for an hour with tea from 4pm.
Abstract: More than 300 characteristics have been proposed to explain the cross-section of stock returns. The existing literature employs Fama-MacBeth regressions to examine which characteristics are significant when considered jointly, but this approach ignores portfolio selection features such as diversification and transaction costs. We study which characteristics are jointly significant for portfolio construction and why. Using the parametric portfolios of Brandt et al. (2009), we find that although 12 character-istics are significant in the absence of transaction costs, only five are significant once transaction costs are taken into account. Moreover, we find that prominent characteristics such as momentum and book to market are not significant because, although their expected returns are higher than their associated transaction costs, these characteristics do not help to diversify the portfolio. We also propose a class of big-data parametric portfolios that an investor can use to exploit a large set of characteristics, and show that these portfolios attain out-of-sample Sharpe ratios around 150%larger than those of the benchmark value-weighted portfolio and around 75% larger than that of portfolios that exploit only the traditional size, momentum, and book-to-market characteristics.

Venue

Research Programmes