KAIST College of Business Selected Publications > Faculty Research > Faculty & Research >KAIST COLLEGE OF BUSINESS
본문 바로가기 사이트 메뉴 바로가기 주메뉴 바로가기

Arbitrage Portfolios

REVIEW OF FINANCIAL STUDIES2021-06

Kim, Soohun | Korajczyk, Robert A | Neuhierl, Andreas

We propose a new methodology for forming arbitrage portfolios that utilizes the information contained in firm characteristics for both abnormal returns and factor loadings. The methodology gives maximal weight to risk-based interpretations of characteristics’ predictive power before any attribution is made to abnormal returns. We apply the methodology to simulated economies and to a large panel of U.S. stock returns. The methodology works well in our simulation and when applied to stocks. Empirically, we find the arbitrage portfolio has (statistically and economically) significant alphas relative to several popular asset pricing models and annualized Sharpe ratios ranging from 1.31 to 1.66.

Publisher
OXFORD UNIV PRESS INC
Issue Date
2021-06
Article Type
Article
Citation
REVIEW OF FINANCIAL STUDIES, Vol.34, No.6, pp.2813 - 2856
ISSN
0893-9454
DOI
10.1093/rfs/hhaa102
Contact : Joo, Sunhee ( shjoo2006@kaist.ac.kr )

Faculty & Research

KCB ISSUE