Advanced

A Conditional Asset Pricing Model with the Optimal Orthogonal Portfolio

Asgharian, Hossein LU (2011) In Journal of Banking & Finance 35(5). p.1027-1040
Abstract
This paper employs a conditional asset-pricing model based on the optimal orthogonal portfolio approach to construct a factor portfolio that embodies all the latent factors important for pricing a given set of test assets. The advantage of this portfolio to the anomaly related mimicking portfolios is its ability to separate out the components of average return that are not related to the return covariation. The performance of this portfolio is evaluated against several conventional factors, using both cross-sectional and time-series regression approaches, as well as the Hansen and Jagannathan (1997) distance measure. Its strong out-of-sample results indicate that our suggested methodology may have important applications in risk management,... (More)
This paper employs a conditional asset-pricing model based on the optimal orthogonal portfolio approach to construct a factor portfolio that embodies all the latent factors important for pricing a given set of test assets. The advantage of this portfolio to the anomaly related mimicking portfolios is its ability to separate out the components of average return that are not related to the return covariation. The performance of this portfolio is evaluated against several conventional factors, using both cross-sectional and time-series regression approaches, as well as the Hansen and Jagannathan (1997) distance measure. Its strong out-of-sample results indicate that our suggested methodology may have important applications in risk management, portfolio selection and performance evaluation. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Optimal orthogonal portfolio, Factor pricing, Time-varying risk premium
in
Journal of Banking & Finance
volume
35
issue
5
pages
1027 - 1040
publisher
Elsevier
external identifiers
  • wos:000289389900001
  • scopus:79952752965
ISSN
1872-6372
DOI
10.1016/j.jbankfin.2010.09.017
language
English
LU publication?
yes
id
ab197294-c413-43eb-bb15-ca4920803798 (old id 1671211)
date added to LUP
2011-01-18 09:51:58
date last changed
2017-01-01 03:58:09
@article{ab197294-c413-43eb-bb15-ca4920803798,
  abstract     = {This paper employs a conditional asset-pricing model based on the optimal orthogonal portfolio approach to construct a factor portfolio that embodies all the latent factors important for pricing a given set of test assets. The advantage of this portfolio to the anomaly related mimicking portfolios is its ability to separate out the components of average return that are not related to the return covariation. The performance of this portfolio is evaluated against several conventional factors, using both cross-sectional and time-series regression approaches, as well as the Hansen and Jagannathan (1997) distance measure. Its strong out-of-sample results indicate that our suggested methodology may have important applications in risk management, portfolio selection and performance evaluation.},
  author       = {Asgharian, Hossein},
  issn         = {1872-6372},
  keyword      = {Optimal orthogonal portfolio,Factor pricing,Time-varying risk premium},
  language     = {eng},
  number       = {5},
  pages        = {1027--1040},
  publisher    = {Elsevier},
  series       = {Journal of Banking & Finance},
  title        = {A Conditional Asset Pricing Model with the Optimal Orthogonal Portfolio},
  url          = {http://dx.doi.org/10.1016/j.jbankfin.2010.09.017},
  volume       = {35},
  year         = {2011},
}