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A Filtering Strategy for Improving Charateristics-Based Portfolios

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  • Sangwon Suh

    (Chung-Ang University, South Korea)

Abstract

In this paper, we propose new indexes to measure the predictive power for future returns possessed by firm characteristics and find that the predictive power significantly differs across the cross-section of assets. We also propose a filtering strategy to improve conventional characteristics-based portfolio profits. The new strategy filters out assets with low predictive power. We apply the new strategy to equity data and find that it significantly outperforms the conventional strategy for several well-known firm characteristics. We also find that characteristics-based portfolio profits are not prevalent but rather driven by only a small subset of stocks.

Suggested Citation

  • Sangwon Suh, 2021. "A Filtering Strategy for Improving Charateristics-Based Portfolios," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 46(2), pages 119-153, June.
    • Handle: RePEc:jed:journl:v:46:y:2021:i:2:p:119-153
    DOI: 10.35866/caujed.2021.46.2.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Firm Characteristics; Market Anomaly; Sorting; Filtered Sorting Internet Appendix: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3874684.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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