Asset Attribution Stability And Portfolio Construction: An Educational Example

This paper illustrates how a third statistic from asset pricing models, the R-squared statistic, may have information that can help in portfolio construction. Using a traditional CAPM model in comparison to an 18-factor Arbitrage Pricing Style Model, a portfolio separation test is conducted. Portfol...

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Bibliographic Details
Published in:American journal of business education 2014-03, Vol.7 (2), p.115-120
Main Authors: Chong, James T., Jennings, William P., Phillips, G. Michael
Format: Article
Language:English
Subjects:
Arbitrage
Business Education
Capital assets
CAPM
Construction
Corporations
Cost Indexes
Dow Jones averages
Economic Factors
Financial analysis
Financial Services
Investment
Least Squares Statistics
Licenses
Periodicals
Portfolio management
Portfolio performance
Portfolios (Background Materials)
Regression (Statistics)
Risk Assessment
Standard deviation
State Schools
State Universities
Statistics
Stock exchanges
Studies
Teaching Methods
Variables
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Summary:This paper illustrates how a third statistic from asset pricing models, the R-squared statistic, may have information that can help in portfolio construction. Using a traditional CAPM model in comparison to an 18-factor Arbitrage Pricing Style Model, a portfolio separation test is conducted. Portfolio returns and risk metrics are compared using data from the Dow Jones 30 stocks over the period January 2007 through October 2013. Various teaching points are discussed and illustrated.
ISSN:1942-2504
1942-2512
DOI:10.19030/ajbe.v7i2.8470